UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2020
or

☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________to___________
Commission File Number: 001-38095
Ingersoll Rand Inc.
(Exact Name of Registrant as Specified in Its Charter)
Delaware
 
46-2393770
(State or Other Jurisdiction of Incorporation or Organization)
 
(I.R.S. Employer Identification No.)

800-A Beaty Street
Davidson, North Carolina 28036
(Address of Principal Executive Offices) (Zip Code)

(704) 655-4000
(Registrant’s Telephone Number, Including Area Code)

Securities Registered Pursuant to Section 12(b) of the Act:

Title of Each Class
Trading Symbol(s)
Name of Each Exchange on Which Registered
Common Stock, $0.01 Par Value per share
IR
New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒   No  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).   Yes ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer
☒
Accelerated filer
☐
       
Non-accelerated filer
☐ 
Smaller reporting company
☐
       
Emerging growth Company
☐
   

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒

The registrant had outstanding 417,059,081 shares of Common Stock, par value $0.01 per share, as of July 31, 2020.



INGERSOLL RAND INC. AND SUBSIDIARIES

FORM 10-Q

INDEX

Page
No.
PART I. FINANCIAL INFORMATION
 
6
39
58
59
PART II. OTHER INFORMATION
 
59
60
60
60
60
60
61
62


2

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

In addition to historical information, this Form 10-Q may contain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which are subject to the “safe harbor” created by those sections.  All statements, other than statements of historical facts included in this Form 10-Q, including statements concerning our plans, objectives, goals, beliefs, business strategies, future events, business conditions, results of operations, financial position, business outlook, business trends and other information, may be forward-looking statements.  Words such as “estimates,” “expects,” “contemplates,” “will,” “anticipates,” “projects,” “plans,” “intends,” “believes,” “forecasts,” “may,” “should” and variations of such words or similar expressions are intended to identify forward-looking statements.  The forward-looking statements are not historical facts, and are based upon our current expectations, beliefs, estimates and projections, and various assumptions, many of which, by their nature, are inherently uncertain and beyond our control.  Our expectations, beliefs, estimates and projections are expressed in good faith and we believe there is a reasonable basis for them.  However, there can be no assurance that management’s expectations, beliefs, estimates and projections will result or be achieved and actual results may vary materially from what is expressed in or indicated by the forward-looking statements.

There are a number of risks, uncertainties and other important factors, many of which are beyond our control, that could cause our actual results to differ materially from the forward-looking statements contained in this Form 10-Q.  Such risks, uncertainties and other important factors that could cause actual results to differ include, among others, the risks, uncertainties and factors set forth under “Item 1A. Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2019, and “Part II. Item 1A. Risk Factors” in our quarterly report on Form 10-Q for the quarterly period ended March 31, 2020, as such risk factors may be updated from time to time in our periodic filings with the SEC, and are accessible on the SEC’s website at www.sec.gov, and also include the following:

•
The COVID-19 pandemic has adversely affected our business and results of operations, and could have a material and adverse effect on our business, results of operations and financial condition in the future;

•
The anticipated benefits of our acquisition of the Ingersoll Rand Industrial business may not be realized fully or at all, may take longer to realize than expected and the integration process will be complex, costly and time-consuming, which could adversely affect our business, financial results and financial condition.

•
We have exposure to the risks associated with instability in the global economy and financial markets, which may negatively impact our revenues, liquidity, suppliers and customers.

•
More than half of our sales and operations are in non-U.S. jurisdictions and we are subject to the economic, political, regulatory and other risks of international operations.

•
Our revenues and operating results, especially in the High Pressure Solutions segment, depend on the level of activity in the energy industry, which is significantly affected by volatile oil and gas prices.

•
Our results of operations are subject to exchange rate and other currency risks. A significant movement in exchange rates could adversely impact our results of operations and cash flows.

•
Potential governmental regulations restricting the use, and increased public attention to and litigation regarding the impacts, of hydraulic fracturing or other processes on which it relies could reduce demand for our products.

3


•
We face competition in the markets we serve, which could materially and adversely affect our operating results.

•
Large or rapid increases in the cost of raw materials and component parts, substantial decreases in their availability or our dependence on particular suppliers of raw materials and component parts could materially and adversely affect our operating results.

•
Our operating results could be adversely affected by a loss or reduction of business with key customers or consolidation or the vertical integration of our customer base.

•
Credit and counterparty risks could harm our business.

•
Acquisitions and integrating such acquisitions create certain risks and may affect our operating results.

•
The loss of, or disruption in, our distribution network could have a negative impact on our abilities to ship products, meet customer demand and otherwise operate our business.

•
Our ongoing and expected restructuring plans and other cost savings initiatives may not be as effective as we anticipate, and we may fail to realize the cost savings and increased efficiencies that we expect to result from these actions. Our operating results could be negatively affected by our inability to effectively implement such restructuring plans and other cost savings initiatives.

•
Our success depends on our executive management and other key personnel and our ability to attract and retain top talent throughout the Company.

•
If we are unable to develop new products and technologies, our competitive position may be impaired, which could materially and adversely affect our sales and market share.

•
Cost overruns, delays, penalties or liquidated damages could negatively impact our results, particularly with respect to fixed-price contracts for custom engineered products.

•
The risk of non-compliance with U.S. and foreign laws and regulations applicable to our international operations could have a significant impact on our results of operations, financial condition or strategic objectives.

•
Changes in tax or other laws, regulations, or adverse determinations by taxing or other governmental authorities could increase our effective tax rate and cash taxes paid or otherwise affect our financial condition or operating results.

•
A significant portion of our assets consists of goodwill and other intangible assets, the value of which may be reduced if we determine that those assets are impaired.

•
Our business could suffer if we experience employee work stoppages, union and work council campaigns or other labor difficulties.

•
We are a defendant in certain asbestos and silica-related personal injury lawsuits, which could adversely affect our financial condition.

•
A natural disaster, catastrophe, pandemic or other event could adversely affect our operations.

•
Information systems failure may disrupt our business and result in financial loss and liability to our customers.

•
The nature of our products creates the possibility of significant product liability and warranty claims, which could harm our business.

•
Environmental compliance costs and liabilities could adversely affect our financial condition.

4


•
Third parties may infringe upon our intellectual property or may claim we have infringed their intellectual property, and we may expend significant resources enforcing or defending our rights or suffer competitive injury.

•
We face risks associated with our pension and other postretirement benefit obligations.

•
Our substantial indebtedness could have important adverse consequences and adversely affect our financial condition.

•
We may not be able to generate sufficient cash to service all of our indebtedness, and may be forced to take other actions to satisfy our obligations under our indebtedness, which may not be successful.

•
Despite our level of indebtedness, we and our subsidiaries may still be able to incur substantially more debt, including off-balance sheet financing, contractual obligations and general and commercial liabilities. This could further exacerbate the risks to our financial condition described above.

•
The terms of the credit agreement governing the Senior Secured Credit Facilities may restrict our current and future operations, particularly our ability to respond to changes or to take certain actions.

•
Our variable rate indebtedness subjects us to interest rate risk, which could cause our debt service obligations to increase significantly.

•
We utilize derivative financial instruments to reduce our exposure to market risks from changes in interest rates on our variable rate indebtedness and we will be exposed to risks related to counterparty credit worthiness or non-performance of these instruments.

•
If the financial institutions that are part of the syndicate of our Revolving Credit Facility fail to extend credit under our facility or reduce the borrowing base under our Revolving Credit Facility, our liquidity and results of operations may be adversely affected.

•
The Company may face risk associated with the discontinuation of and transition from currently used financial reference rates.

We caution you that the risks, uncertainties and other factors referenced above may not contain all of the risks, uncertainties and other factors that are important to you.  In addition, we cannot assure you that we will realize the results, benefits or developments that we expect or anticipate or, even if substantially realized, that they will result in the consequences or affect us or our business in the way expected.  There can be no assurance that (i) we have correctly measured or identified all of the factors affecting our business or the extent of these factors’ likely impact, (ii) the available information with respect to these factors on which such analysis is based is complete or accurate, (iii) such analysis is correct or (iv) our strategy, which is based in part on this analysis, will be successful.  All forward-looking statements in this report apply only as of the date of this report or as of the date they were made and, except as required by applicable law, we undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise.

All references to “we,” “us,” “our,” the “Company” or “Ingersoll Rand” in this Quarterly Report on Form 10-Q mean Ingersoll Rand Inc. and its subsidiaries, unless the context otherwise requires.

Website Disclosure

We use our website www.irco.com as a channel of distribution of Company information. Financial and other important information regarding us is routinely accessible through and posted on our website. Accordingly, investors should monitor our website, in addition to following our press releases, SEC filings and public conference calls and webcasts. In addition, you may automatically receive e-mail alerts and other information about Ingersoll Rand Inc. when you enroll your email address by visiting the “Email Alerts” section of our website at investors.irco.com. The contents of our website are not, however, a part of this Quarterly Report on Form 10-Q.

5



PART I.
FINANCIAL INFORMATION

ITEM 1.
FINANCIAL STATEMENTS

INGERSOLL RAND INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Dollars in millions, except per share amounts)

 
For the
Three Month
Period Ended
June 30,
   
For the
Six Month
Period Ended
June 30,
 
   
2020
   
2019
   
2020
   
2019
 
Revenues
 
$
1,264.4
   
$
629.1
   
$
2,064.3
   
$
1,249.4
 
Cost of sales
   
904.4
     
394.7
     
1,459.8
     
784.5
 
Gross Profit
   
360.0
     
234.4
     
604.5
     
464.9
 
Selling and administrative expenses
   
247.7
     
110.7
     
403.1
     
227.7
 
Amortization of intangible assets
   
114.6
     
30.9
     
169.8
     
62.3
 
Other operating expense, net
   
49.9
     
18.2
     
150.6
     
20.0
 
Operating (Loss) Income
   
(52.2
)
   
74.6
     
(119.0
)
   
154.9
 
Interest expense
   
30.8
     
22.4
     
57.9
     
44.8
 
Loss on extinguishment of debt
   
—
     
0.2
     
2.0
     
0.2
 
Other income, net
   
(2.3
)
   
(1.2
)
   
(2.5
)
   
(2.5
)
(Loss) Income Before Income Taxes
   
(80.7
)
   
53.2
     
(176.4
)
   
112.4
 
Provision for income taxes
   
95.8
     
8.3
     
37.0
     
20.3
 
Net (Loss) Income
   
(176.5
)
   
44.9
     
(213.4
)
   
92.1
 
Less: Net income attributable to noncontrolling interests
   
1.1
     
—
     
1.0
     
—
 
Net (Loss) Income Attributable to Ingersoll Rand Inc.
 
$
(177.6
)
 
$
44.9
   
$
(214.4
)
 
$
92.1
 
Basic (loss) earnings per share
 
$
(0.43
)
 
$
0.22
   
$
(0.62
)
 
$
0.45
 
Diluted (loss) earnings per share
 
$
(0.43
)
 
$
0.21
   
$
(0.62
)
 
$
0.44
 

The accompanying notes are an integral part of these condensed consolidated financial statements.
6


INGERSOLL RAND INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(Unaudited)
(Dollars in millions)

 
For the Three Month
Period Ended
June 30,
   
For the Six Month
Period Ended
June 30,
 
   
2020
   
2019
   
2020
   
2019
 
Comprehensive (Loss) Income Attributable to Ingersoll Rand Inc.
                       
Net (loss) income attributable to Ingersoll Rand Inc.
 
$
(177.6
)
 
$
44.9
   
$
(214.4
)
 
$
92.1
 
Other comprehensive (loss) income, net of tax
                               
Foreign currency translation adjustments, net
   
44.9
     
(6.4
)
   
(47.3
)
   
(6.5
)
Unrecognized gain (loss) on cash flow hedges, net
   
5.5
     
(0.5
)
   
6.7
     
1.4
 
Pension and other postretirement prior service cost and gain or loss, net
   
0.5
     
1.2
     
3.4
     
1.4
 
Total other comprehensive income (loss), net of tax
   
50.9
     
(5.7
)
   
(37.2
)
   
(3.7
)
Comprehensive (loss) income attributable to Ingersoll Rand Inc.
 
$
(126.7
)
 
$
39.2
   
$
(251.6
)
 
$
88.4
 
Comprehensive Loss Attributable to Noncontrolling Interests
                               
Net income attributable to noncontrolling interests
 
$
1.1
   
$
—
   
$
1.0
   
$
—
 
Other comprehensive income, net of tax
                               
Foreign currency translation adjustments, net
   
(0.4
)
   
—
     
(4.4
)
   
—
 
Total other comprehensive loss, net of tax
   
(0.4
)
   
—
     
(4.4
)
   
—
 
Comprehensive income (loss) attributable to noncontrolling interests
   
0.7
     
—
     
(3.4
)
   
—
 
Total Comprehensive (Loss) Income
 
$
(126.0
)
 
$
39.2
   
$
(255.0
)
 
$
88.4
 

The accompanying notes are an integral part of these condensed consolidated financial statements.
7


INGERSOLL RAND INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars in millions, except share and per share amounts)

 
June 30,
2020
   
December 31,
2019
 
Assets
           
Current assets:
           
Cash and cash equivalents
 
$
1,173.6
   
$
505.5
 
Accounts receivable, net of allowance for doubtful accounts of $65.6 and $18.4, respectively
   
922.2
     
459.1
 
Inventories
   
1,026.4
     
502.5
 
Other current assets
   
204.6
     
76.8
 
Total current assets
   
3,326.8
     
1,543.9
 
Property, plant and equipment, net of accumulated depreciation of $335.2 and $298.4, respectively
   
832.0
     
326.6
 
Goodwill
   
6,055.1
     
1,287.7
 
Other intangible assets, net
   
4,848.7
     
1,255.0
 
Deferred tax assets
   
13.7
     
3.0
 
Other assets
   
357.0
     
212.2
 
Total assets
 
$
15,433.3
   
$
4,628.4
 
Liabilities and Stockholders’ Equity
               
Current liabilities:
               
Short-term borrowings and current maturities of long-term debt
 
$
39.8
   
$
7.6
 
Accounts payable
   
683.5
     
322.9
 
Accrued liabilities
   
754.9
     
244.1
 
Total current liabilities
   
1,478.2
     
574.6
 
Long-term debt, less current maturities
   
3,816.7
     
1,603.8
 
Pensions and other postretirement benefits
   
271.1
     
99.7
 
Deferred income taxes
   
913.3
     
251.0
 
Other liabilities
   
312.2
     
229.4
 
Total liabilities
 
$
6,791.5
   
$
2,758.5
 
Commitments and contingencies (Note 15)
   
     
 
Stockholders’ equity
               
Common stock, $0.01 par value; 1,000,000,000 shares authorized; 418,592,336 and 206,767,529 shares issued as of June 30, 2020 and December 31, 2019, respectively
   
4.2
     
2.1
 
Capital in excess of par value
   
9,256.5
     
2,302.0
 
Accumulated deficit
   
(356.8
)
   
(141.4
)
Accumulated other comprehensive loss
   
(293.2
)
   
(256.0
)
Treasury stock at cost; 1,633,875 and 1,701,785 shares as of June 30, 2020 and December 31, 2019, respectively
   
(35.8
)
   
(36.8
)
Total Ingersoll Rand Inc stockholders’ equity
 
$
8,574.9
   
$
1,869.9
 
Noncontrolling interests
   
66.9
     
—
 
Total stockholders’ equity
 
$
8,641.8
   
$
1,869.9
 
Total liabilities and stockholders’ equity
 
$
15,433.3
   
$
4,628.4
 

The accompanying notes are an integral part of these condensed consolidated financial statements.


8


INGERSOLL RAND INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
(Dollars in millions)

 
For the Three Month
Period Ended
June 30,
 
   
2020
   
2019
 
Number of Common Shares Issued (in millions)
           
Balance at beginning of period
   
418.2
     
203.3
 
Issuance of common stock for stock-based compensation plans
   
0.4
     
2.4
 
Balance at end of period
   
418.6
     
205.7
 
Common Stock
               
Balance at beginning of period
 
$
4.2
   
$
2.0
 
Issuance of common stock for stock-based compensation plans
   
—
     
0.1
 
Balance at end of period
 
$
4.2
   
$
2.1
 
Capital in Excess of Par Value
               
Balance at beginning of period
 
$
9,241.5
   
$
2,289.3
 
Issuance of common stock for stock-based compensation plans
   
3.7
     
11.8
 
Issuance of treasury stock for stock-based compensation plans
   
(0.6
)
   
(16.0
)
Stock-based compensation
   
11.9
     
2.8
 
Balance at end of period
 
$
9,256.5
   
$
2,287.9
 
Accumulated Deficit
               
Balance at beginning of period
 
$
(179.2
)
 
$
(253.3
)
Net (loss) income attributable to Ingersoll Rand Inc.
   
(177.6
)
   
44.9
 
Balance at end of period
 
$
(356.8
)
 
$
(208.4
)
Accumulated Other Comprehensive Loss
               
Balance at beginning of period
 
$
(344.1
)
 
$
(253.2
)
Foreign currency translation adjustments, net
   
44.9
     
(6.4
)
Unrecognized gains (losses) on cash flow hedges, net
   
5.5
     
(0.5
)
Pension and other postretirement prior service cost and gain or loss, net
   
0.5
     
1.2
 
Balance at end of period
 
$
(293.2
)
 
$
(258.9
)
Treasury Stock
               
Balance at beginning of period
 
$
(36.2
)
 
$
(47.0
)
Purchases of treasury stock
   
(0.6
)
   
(8.6
)
Issuance of treasury stock for stock-based compensation plans
   
1.0
     
18.2
 
Balance at end of period
 
$
(35.8
)
 
$
(37.4
)
Total Ingersoll Rand Inc. Stockholders' Equity
 
$
8,574.9
   
$
1,785.3
 
Noncontrolling Interests
               
Balance at beginning of period
 
$
69.3
   
$
—
 
Net income attributable to noncontrolling interests
   
1.1
     
—
 
Foreign currency translation adjustments, net
   
(1.5
)
   
—
 
Adjustments for shares tendered in open offer (Note 1)
   
(2.0
)
   
—
 
Balance at end of period
 
$
66.9
   
$
—
 
Total Stockholders’ Equity
 
$
8,641.8
   
$
1,785.3
 

The accompanying notes are an integral part of these condensed consolidated financial statements.

9


INGERSOLL RAND INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
(Dollars in millions)

 
For the Six Month
Period Ended
June 30,
 
   
2020
   
2019
 
Number of Common Shares Issued (in millions)
           
Balance at beginning of period
   
206.8
     
201.1
 
Issuance of common stock for stock-based compensation plans
   
0.8
     
4.6
 
Shares issued to acquire Ingersoll Rand Industrial
   
211.0
     
—
 
Balance at end of period
   
418.6
     
205.7
 
Common Stock
               
Balance at beginning of period
 
$
2.1
   
$
2.0
 
Issuance of common stock for stock-based compensation plans
   
—
     
0.1
 
Shares issued to acquire Ingersoll Rand Industrial
   
2.1
     
—
 
Balance at end of period
 
$
4.2
   
$
2.1
 
Capital in Excess of Par Value
               
Balance at beginning of period
 
$
2,302.0
   
$
2,282.7
 
Issuance of common stock for stock-based compensation plans
   
5.9
     
24.7
 
Issuance of treasury stock for stock-based compensation plans
   
(1.5
)
   
(25.2
)
Shares issued for Ingersoll Rand Industrial acquisition
   
6,917.4
     
—
 
Fair value attributable to pre-merger service for replacement equity awards
   
8.6
     
—
 
Fair value attributable to pre-merger service for deferred compensation plan
   
8.9
     
—
 
Cost incurred to issue shares for Ingersoll Rand Industrial acquisition
   
(1.0
)
   
—
 
Stock-based compensation
   
16.2
     
5.7
 
Balance at end of period
 
$
9,256.5
   
$
2,287.9
 
Accumulated Deficit
               
Balance at beginning of period
 
$
(141.4
)
 
$
(308.7
)
Net (loss) income attributable to Ingersoll Rand Inc.
   
(214.4
)
   
92.1
 
Cumulative-effect adjustment upon adoption of new accounting standard (ASU 2018-02)
   
—
     
8.2
 
Cumulative-effect adjustment upon adoption of new accounting standard (ASU 2016-13)
   
(1.0
)
   
—
 
Balance at end of period
 
$
(356.8
)
 
$
(208.4
)
Accumulated Other Comprehensive Loss
               
Balance at beginning of period
 
$
(256.0
)
 
$
(247.0
)
Foreign currency translation adjustments, net
   
(47.3
)
   
(6.5
)
Unrecognized gains on cash flow hedges, net
   
6.7
     
1.4
 
Pension and other postretirement prior service cost and gain or loss, net
   
3.4
     
1.4
 
Cumulative-effect adjustment upon adoption of new accounting standard (ASU 2018-02)
   
—
     
(8.2
)
Balance at end of period
 
$
(293.2
)
 
$
(258.9
)
Treasury Stock
               
Balance at beginning of period
 
$
(36.8
)
 
$
(53.0
)
Purchases of treasury stock
   
(1.3
)
   
(17.1
)
Issuance of treasury stock for stock-based compensation plans
   
2.3
     
32.7
 
Balance at end of period
 
$
(35.8
)
 
$
(37.4
)
Total Ingersoll Rand Inc. Stockholders' Equity
 
$
8,574.9
   
$
1,785.3
 
Noncontrolling Interests
               
Balance at beginning of period
 
$
—
   
$
—
 
Noncontrolling interest from acquisition of Ingersoll Rand Industrial
   
72.3
     
—
 
Net income attributable to noncontrolling interests
   
1.0
     
—
 
Foreign currency translation adjustments, net
   
(4.4
)
   
—
 
Adjustments for shares tendered in open offer (Note 1)
   
(2.0
)
   
—
 
Balance at end of period
 
$
66.9
   
$
—
 
Total Stockholders’ Equity
 
$
8,641.8
   
$
1,785.3
 

The accompanying notes are an integral part of these condensed consolidated financial statements.
10


INGERSOLL RAND INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 (Dollars in millions)

 
For the
six month
period ended
June 30,
 
   
2020
   
2019
 
Cash Flows From Operating Activities:
           
Net (Loss) income
 
$
(213.4
)
 
$
92.1
 
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
               
Amortization of intangible assets
   
169.8
     
62.3
 
Depreciation in cost of sales
   
41.7
     
22.8
 
Depreciation in selling and administrative expenses
   
5.3
     
4.8
 
Stock-based compensation expense
   
16.2
     
13.6
 
Foreign currency transaction losses, net
   
7.8
     
3.7
 
Deferred income taxes
   
25.1
     
6.5
 
Non-cash adjustments to carrying value of LIFO inventories
   
45.9
     
—
 
Other non-cash adjustments
   
14.5
     
(0.1
)
Changes in assets and liabilities:
               
Receivables
   
111.5
     
17.2
 
Inventories
   
(7.8
)
   
(35.0
)
Accounts payable
   
26.5
     
(0.8
)
Accrued liabilities
   
98.7
     
(0.9
)
Other assets and liabilities, net
   
(26.0
)
   
(56.1
)
Net cash provided by operating activities
   
315.8
     
130.1
 
Cash Flows From Investing Activities:
               
Capital expenditures
   
(25.4
)
   
(24.7
)
Net cash acquired (paid) in business combinations
   
41.3
     
(0.5
)
Disposals of property, plant and equipment
   
1.4
     
0.7
 
Net cash provided by (used in) investing activities
   
17.3
     
(24.5
)
Cash Flows From Financing Activities:
               
Principal payments on long-term debt
   
(1,599.6
)
   
(28.8
)
Proceeds from long-term debt
   
1,980.1
     
—
 
Purchases of treasury stock
   
(1.3
)
   
(17.1
)
Proceeds from stock option exercises
   
6.8
     
32.1
 
Payments of contingent consideration
   
(0.7
)
   
(2.0
)
Payments of debt issuance costs
   
(46.6
)
   
(0.3
)
Payments of costs incurred to issue shares for Ingersoll Rand Industrial acquisition
   
(1.0
)
   
—
 
Other financing
   
(0.8
)
   
—
 
Net cash provided by (used in) financing activities
   
336.9
     
(16.1
)
Effect of exchange rate changes on cash and cash equivalents
   
(1.9
)
   
6.8
 
Net increase in cash and cash equivalents
   
668.1
     
96.3
 
Cash and cash equivalents, beginning of period
   
505.5
     
221.2
 
Cash and cash equivalents, end of period
 
$
1,173.6
   
$
317.5
 
Supplemental Cash Flow Information
               
Cash paid for income taxes
 
$
30.5
   
$
31.5
 
Cash paid for interest
   
54.2
     
42.5
 
Leased assets obtained in exchange for new operating lease liabilities
   
16.9
     
3.0
 
Capital expenditures in accounts payable
   
3.1
     
3.8
 

The accompanying notes are an integral part of these condensed consolidated financial statements.

11



INGERSOLL RAND INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Amounts in millions, except share and per share amounts)

Note 1. Basis of Presentation and Recent Accounting Pronouncements

Basis of Presentation

On February 29, 2020, Ingersoll Rand Inc. (formerly known as Gardner Denver Holdings, Inc.) completed the acquisition of the Ingersoll Rand Industrial business (“Ingersoll Rand Industrial”) by way of merger and changed its name from Gardner Denver Holdings, Inc. to Ingersoll Rand Inc.  The condensed consolidated financial statements as of and for the six month period ended June 30, 2020 include the financial results of Ingersoll Rand Industrial from the date of acquisition.

Ingersoll Rand Inc. is a diversified, global manufacturer of highly engineered, application-critical flow control products and provider of related aftermarket parts and services. The accompanying condensed consolidated financial statements include the accounts of Ingersoll Rand Inc. and its majority-owned subsidiaries (collectively referred to herein as “Ingersoll Rand” or the “Company”).

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial reporting, the instructions for Form 10-Q and Article 10 of the U.S. Securities and Exchange Commission (SEC) Regulation S-X. In the Company’s opinion, the condensed consolidated financial statements reflect all adjustments of a normal recurring nature necessary for a fair statement of the results for the interim periods presented. The condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2019.

The results of operations for the interim periods ended June 30, 2020 is not necessarily indicative of the results to be expected for the full year.  The ongoing novel Coronavirus (“COVID-19”) pandemic is a rapidly evolving situation around the globe that has negatively impacted and could continue to negatively impact the global economy.  The Company’s operating results will be subject to fluctuations based on general economic conditions, and the extent to which COVID-19 may ultimately impact its business will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the ultimate extent of the spread of the disease and the duration of the outbreak and business closures or business disruptions for the Company, suppliers and customers.

Immediately prior to the acquisition of Ingersoll Rand Industrial, affiliates of Kohlberg Kravis Roberts & Co. L.P. (“KKR”) owned 70,671,135 shares of common stock of the Company or approximately 34%, of the total outstanding common stock of the Company.  As of June 30, 2020, KKR owns 44,788,635 shares of common stock of the Company or approximately 11% of the total outstanding common stock of the Company.

The classification of stock-based compensation expense (including related employer tax cost) reported for the three and six month periods ended June 30, 2019 was corrected. As a result, previously reported “Other operating expense, net” was decreased and “Selling and administrative expenses” was increased by $7.1 million for the three month period ended June 30, 2019, and by $16.4 million for the six month period ended June 30, 2019.

Noncontrolling interests
 
The Company has a controlling interest of approximately 74% in Ingersoll-Rand India Limited (“IR India Limited”). The remaining shares are owned by unaffiliated shareholders and traded on India stock exchanges regulated by Securities and Exchange Board of India (“SEBI”).
 
The Company’s acquisition of Ingersoll Rand Industrial resulted in an indirect change in control of IR India Limited as defined by SEBI Substantial Acquisition of Shares and Takeovers (SAST) regulations. As a result, the Company was required to pursue either a tender offer for a certain number of noncontrolling shares or a voluntary delisting of the entity from India stock exchanges.
 
On June 22, 2020, the Company initiated a tender offer to purchase up to 26% of outstanding shares of Ingersoll-Rand India Limited from eligible noncontrolling shareholders. The offer price was determined in accordance with SEBI (SAST) regulations as the average market price of shares of IR India Limited on India stock exchanges for a period of sixty days preceding the announcement of the Ingersoll Rand Industrial merger transaction, adjusted for imputed interest for the period of time between announcement of the merger and announcement of the tender offer.
12


The Company determined this offer is a freestanding financial instrument and not a contractual redemption right embedded in the related equity securities. In accordance with ASC 480 Distinguishing Liabilities from Equity, a liability is recognized at fair value for a conditional obligation to purchase an undetermined number of shares for a price other than fair value. The liability as of June 30, 2020 was not material to the financial statements. The noncontrolling interest remained classified and measured in accordance with ASC 810 Consolidation with the carrying value presented in permanent equity.
 
As of June 30, 2020, noncontrolling shareholders with aggregate holdings of 0.8% of outstanding shares submitted acceptance of the tender offer. The expected aggregate offer price for these shares of $2.0 million was recognized as a current liability and presented within Accrued liabilities in the Condensed Consolidated Balance Sheet as of June 30, 2020.
 
The tender offer expired on July 3, 2020. See Note 19 “Subsequent Events” for further details on the results of the tender offer.

Recently Adopted Accounting Standard Updates (“ASU”)

In August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2018-15, Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40); Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. The amendments in this update require implementation costs incurred by customers in cloud computing arrangements (i.e., hosting arrangements) to be capitalized under the same premises of authoritative guidance for internal-use software, and deferred over the noncancelable term of the cloud computing arrangement plus any option renewal periods that are reasonably certain to be exercised by the customer or for which the exercise is controlled by the service provider. The Company adopted this guidance prospectively on January 1, 2020.  The adoption did not have a material impact on the Company’s condensed consolidated financial statements.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement. The amendments in this update eliminate, add and modify certain disclosure requirements for fair value measurements as part of its disclosure framework project. The Company adopted this guidance on January 1, 2020.  The adoption did not have a material impact on the Company’s condensed consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which added an impairment model that is based on expected losses rather than incurred losses and is called the Current Expected Credit Losses (“CECL”) model. This impairment model is applicable to loans, debt securities, trade receivables, net investments in leases, off-balance sheet credit exposures, reinsurance receivables as well as any other financial asset with the contractual right to receive cash. Under the new model, an allowance equal to the estimate of lifetime expected credit losses is recognized which will result in more timely loss recognition. The guidance is intended to reduce complexity by decreasing the number of credit impairment models. The Company adopted this guidance on January 1, 2020, using a modified retrospective transition method.  The Company recorded a cumulative-effect adjustment on the adoption date increasing “Accumulated deficit” in the Condensed Consolidated Balance Sheets by $1.0 million and decreasing “Accounts receivable, net of allowance for doubtful accounts” in the Condensed Consolidated Balance Sheets by $1.0 million.

Recently Issued Accounting Pronouncements

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional expedients and exceptions for a limited time to ease the potential burden of accounting for reference rate reform on financial reporting. This guidance applies to contracts, hedging relationships and other transactions affected by the discontinuation of the London Interbank Offered Rate (“LIBOR”) and other interbank offered rates.  The guidance is effective beginning on March 12, 2020 through December 31, 2022.  The Company has not utilized any of the optional expedients or exceptions available under this ASU.  The Company will continue to assess whether this ASU is applicable throughout the effective period.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The amendments in this update simplify the accounting for income taxes by removing certain exceptions and amending and clarifying existing guidance.  The guidance is effective for public companies beginning with the first quarter of 2021.  Early adoption is permitted. The Company is currently assessing the impact of this ASU on its condensed consolidated financial statements and evaluating the timing of adoption.
13


In August 2018, the FASB issued ASU 2018-14, Disclosure Framework – Changes to the Disclosure Requirements for Defined Benefit Plans. The amendments in this update eliminate, add and modify certain disclosure requirements for defined benefit pension plans. The guidance is effective for public companies beginning with its annual report for fiscal year 2020.  This ASU will have an immaterial impact on the Company’s condensed consolidated financial statements.

Note 2. Business Combinations

Ingersoll Rand Industrial Acquisition

On February 29, 2020, Ingersoll Rand completed the acquisition of Ingersoll Rand Industrial for the total estimated purchase consideration of approximately $6,937.0 million which represents Ingersoll Rand common stock with a fair value of $6,919.5 million and the balance equal to the fair value attributable to pre-acquisition service for replacement equity awards and deferred compensation arrangements settled in shares (or valued by reference to shares) of Ingersoll Rand common stock.  Ingersoll Rand Industrial is a global provider of mission-critical flow control and compression equipment and associated aftermarket parts, consumables and services.  Ingersoll Rand acquired Ingersoll Rand Industrial to extend and enhance its portfolio of products to address market opportunities in the compressor, blower, pump and other industrial product markets.

Immediately prior to the merger, Trane Technologies plc (formerly known as Ingersoll-Rand plc) (“Old IR” or “Trane Technologies”) completed a spin-off in which it distributed one share of common stock of Ingersoll-Rand Industrial US. Holdco, Inc. (“SpinCo”), par value $0.01 per share, for each share of Old IR, outstanding as of the record date for the spin-off on February 24, 2020.  In accordance with the merger agreement by and among Ingersoll Rand, Old IR, SpinCo and Charm Merger Sub Inc, a wholly owned subsidiary of Ingersoll Rand (“Merger Sub”), Merger Sub merged with and into SpinCo (the “acquisition”) and each share of common stock of SpinCo, par value $0.01 per share (“SpinCo common stock”), issued and outstanding immediately prior to the acquisition was converted into the right to receive 0.8824 shares of common stock of Ingersoll Rand, par value $0.01 per share (“Ingersoll Rand common stock”).  Immediately after the consummation of the acquisition, approximately 50.1% of the outstanding shares of Ingersoll Rand common stock on a fully-diluted basis was held by SpinCo stockholders and approximately 49.9% of the outstanding shares of the Company common stock on a fully-diluted basis was held by pre-acquisition Ingersoll Rand stockholders.  Since Ingersoll Rand (formerly named Gardner Denver Holdings, Inc.) is the accounting acquirer, the fair value of the equity issued by Ingersoll Rand to SpinCo stockholders in the acquisition was determined by reference to the market price of Ingersoll Rand common stock.  Accordingly, the purchase consideration below reflects the estimated fair value of the Ingersoll Rand shares issued in exchange for shares of SpinCo common stock in the acquisition, which is based on the final closing price of shares of Ingersoll Rand common stock prior to the effective time of the acquisition on February 28, 2020 of $32.79 per share.  The Company has incurred approximately $87.3 million in total acquisition-related costs, including $0.0 million and $42.3 million in the three and six month periods ended June 30, 2020, respectively, and $16.3 million in the three and six month periods ended June 30, 2019, presented within “Other operating expenses, net” in the Condensed Consolidated Statements of Operations.  In addition, the Company incurred $1.0 million in registration fees to issue shares for the acquisition of Ingersoll Rand Industrial.  The $1.0 million reduced “Capital in excess of par value” of the Condensed Consolidated Balance Sheets.

Preliminary Purchase Price Allocation

In accordance with the FASB’s ASC 805 Business Combinations, Ingersoll Rand was determined to be the accounting acquirer.  As such, Ingersoll Rand applied the acquisition method of accounting with respect to the identifiable assets and liabilities of Ingersoll Rand Industrial, which have been measured at estimated fair value as of the date of the business combination.

Ingersoll Rand Industrial’s assets and liabilities were measured at estimated fair values at February 29, 2020, primarily using Level 3 inputs except for debt, which was measured using Level 2 inputs and noncontrolling interests, which was measured using Level 1 inputs.  Estimates of fair value represent management’s best estimate of assumptions about future events and uncertainties, including significant judgments related to future cash flows, discount rates, competitive trends, margin and revenue growth assumptions including royalty rates and customer attrition rates, market comparables and others.  Inputs used were generally obtained from historical data supplemented by current and anticipated market conditions and growth rates.

The following table summarizes the preliminary allocation of purchase price to the identifiable assets acquired and liabilities assumed by Ingersoll Rand, with the excess of purchase price over the fair value of Ingersoll Rand Industrial’s net assets recorded as goodwill.  Due to the timing and the magnitude of the transaction and the multi-jurisdictional nature of the net assets acquired, initial accounting for the acquisition is not complete and further measurement period adjustments are expected in fiscal year 2020.  The Company has estimated the preliminary fair value of net assets acquired based on information currently available and will continue to adjust those estimates as additional information becomes available, including the refinement of market participant assumptions and finalization of tax returns in the pre-acquisition period. The Company will reflect measurement period adjustments in the period in which the adjustments are determined.
14


The aggregate purchase consideration has been preliminarily allocated as follows.

Purchase Price
 
Estimated fair value,
as previously
reported
   
Measurement
period
adjustments(4)
   
Estimated fair
value, as
adjusted
 
Fair value of Ingersoll Rand common stock issued for Ingersoll Rand
                 
Industrial outstanding common stock(1)
 
$
6,919.5
   
$
—
   
$
6,919.5
 
Fair value attributable to pre-merger service for replacement equity awards(2)
   
8.6
     
—
     
8.6
 
Fair value attributable to pre-merger service for deferred compensation plan(3)
   
8.9
     
—
     
8.9
 
Total purchase consideration
 
$
6,937.0
   
$
—
   
$
6,937.0
 

Purchase Price Allocation
                 
Cash
 
$
41.3
   
$
—
   
$
41.3
 
Accounts receivable
   
579.9
     
14.8
     
594.7
 
Inventories
   
576.2
     
62.2
     
638.4
 
Other current assets
   
136.9
     
(21.2
)
   
115.7
 
Property, plant and equipment
   
520.0
     
17.1
     
537.1
 
Goodwill
   
4,278.2
     
505.9
     
4,784.1
 
Intangible assets
   
4,501.3
     
(740.6
)
   
3,760.7
 
Other noncurrent assets
   
269.8
     
(8.0
)
   
261.8
 
Total current liabilities, including current maturities of long-term debt of $19.0 million
   
(830.6
)
   
48.5
     
(782.1
)
Deferred tax liability
   
(900.6
)
   
111.4
     
(789.2
)
Long-term debt, net of debt issuance costs and an original issue discount
   
(1,851.7
)
   
—
     
(1,851.7
)
Other noncurrent liabilities
   
(310.4
)
   
9.9
     
(300.5
)
Noncontrolling interest
   
(73.3
)
   
—
     
(73.3
)
   
$
6,937.0
   
$
—
   
$
6,937.0
 

(1)
Represents the fair value of 211,023,522 shares of the Company’s common stock issued for Ingersoll Rand Industrial outstanding common stock multiplied by $32.79, the price per share of common stock as of the closing price on February 28, 2020.

(2)
Represents the fair value of the replacement equity awards to the extent those related to services provided by the employee of Ingersoll Rand Industrial prior to closing.  See Note 9 “Stock-Based Compensation Plan” for additional information about the replacement equity awards.

(3)
Represents the fair value of the deferred compensation plan to be settled in equity.  See Note 7 “Benefit Plans” for additional information about the deferred compensation plan.

(4)
The measurement period adjustments were to refine fair value measurements of intangible assets and carrying amounts of certain assets and liabilities, as well as adjustments to related deferred tax liabilities.
15


Certain amounts in the Condensed Consolidated Statement of Operations for the three months ended June 30, 2020 would have been different if the measurement period adjustments made in the current period were made as of the acquisition date. The effects on net income (loss) for the three months ended June 30, 2020 are as follows:

 
(Increase)
decrease in
current period
net loss
 
Revenues
 
$
0.8
 
Cost of sales
   
(13.7
)
Amortization of intangible assets
   
2.4
 
(Loss) Income Before Income Taxes
   
(10.5
)
(Benefit) provision for income taxes
   
6.5
 
Net (Loss) Income
 
$
(4.0
)

Summary of Significant Fair Value Methods

The methods used to determine the preliminary fair value of significant identifiable assets and liabilities included in the preliminary allocation of purchase price are discussed below.  The final fair value determination may differ from this preliminary determination.

Inventories

Acquired inventory is comprised of finished goods, work in process and raw materials.  The preliminary fair value of finished goods was calculated as the estimated selling price, adjusted for costs of the selling effort and a reasonable profit allowance relating to the selling effort.  The preliminary fair value of work in process inventory was primarily calculated as the estimated selling price, adjusted for estimated costs to complete the manufacturing, estimated costs of the selling effort, as well as a reasonable profit margin on the remaining manufacturing and selling effort.  The preliminary fair value of raw materials and supplies was determined based on replacement cost which approximates historical carrying value.  The preliminary fair value step-up of inventory of $116.2 million is comprised of step-up of inventory measured on a First in First Out (“FIFO”) basis of $70.3 million and inventories measured on a Last In First Out (“LIFO”) basis of $45.9 million. Inventory measured on a FIFO basis is amortized to “Cost of sales” in the condensed consolidated financial statements as the inventory is sold, which is expected to be a period of four months from the acquisition date.  For inventories measured on a LIFO basis, the acquired inventory becomes the LIFO base layer inventory and subsequently evaluated for lower-of-cost-or-market adjustments, as necessary.

Property, Plant and Equipment

The preliminary fair value of property, plant and equipment was primarily calculated using replacement costs adjusted for the age and condition of the asset, with the exception of real property which was calculated using the market approach, and is summarized below.

Land
 
$
59.4
 
Buildings
   
176.3
 
Machinery and equipment
   
256.9
 
Office furniture and equipment
   
13.4
 
Other
   
1.0
 
Construction in progress
   
30.1
 
Preliminary fair value of property, plant and equipment
 
$
537.1
 
16


Identifiable Intangible Assets

The estimated preliminary fair value and weighted average useful life of the Ingersoll Rand Industrial identifiable intangible assets are as follows.

Fair Value
 
Weighted average
useful life (years)
Tradenames(1)
$
1,312.0
 
Indefinite
Developed technology(2)
 
236.0
 
7
Customer relationships(3)
 
2,096.0
 
13
Backlog(4)
 
80.3
 
 <1
Other(5)
 
36.4
 
3
Preliminary fair value of identfiable intangible assets
$
3,760.7
   

(1)
Tradenames were identified from brands of Ingersoll Rand Industrial.  The preliminary fair value of tradenames were determined using a relief from royalty methodology which estimates the cost savings generated by a company related to the ownership of an asset for which it would otherwise have had to pay royalties or license fees on revenues earned through the use of the asset.  The discount rate used was determined at the time of measurement based on an analysis of the implied internal rate of return of the transaction, weighted average cost of capital and weighted average return on assets.  Tradenames are expected to have an indefinite useful life.

(2)
Developed technology was identified from the products of Ingersoll Rand Industrial.  Preliminary fair values were determined using a relief from royalty methodology with similar methodology and assumptions as described in the tradename description above.  The economic useful life was determined based on the technology cycle related to each developed technology, as well as the cash flows over the forecast period.

(3)
Customer relationships represent the preliminary fair value of existing relationships with the Ingersoll Rand Industrial customers.  Its preliminary fair value was determined using the Multi-Period Excess Earning Method which involves isolating the net earnings attributable to the asset being measured based on present value of the incremental after-tax cash flows (excess earnings) attributable solely to the intangible asset over its remaining useful life.  The valuation includes a valuation of the assembled workforce, using the Cost Approach, for purposes of calculating contributory asset charges to be used in the Multi-Period Excess Earning Method valuations.  The economic useful life was determined based on historical customer attrition rates.

(4)
Backlog primarily relates to the dollar value of purchase arrangements with customers, effective, as of a given point in time, that are based on mutually agreed terms which, in some cases, may still be subject to completion of written documentation and may be changed or cancelled by the customer, often without penalty.  Ingersoll Rand Industrial’s backlog consists of these arrangements with assigned shipment dates expected, in most cases, within three to twelve months.  The preliminary fair value was determined using the Multi-Period Excess Earning Method.  The economic useful life is based on the time to fulfill the outstanding order backlog obligation.

(5)
Other intangible assets is primarily comprised of software.

The Company believes that the amounts of purchased intangible assets recorded represent the preliminary fair values of and approximates the amounts a market participant would pay for these intangible assets as of the acquisition date.
17


Leases, including lease liabilities and right-of-use (“ROU”) assets

Lease liabilities, included in “Accrued liabilities” and “Other non-current liabilities” in the Condensed Consolidated Balance Sheets, at the acquisition date, are measured at the present value of the future minimum lease payments over the remaining lease term and the incremental borrowing rate of Ingersoll Rand as if the acquired leases were new leases as of the acquisition date.  ROU assets included in “Other assets” in the Condensed Consolidated Balance Sheets as of the acquisition date, are equal to the amount of the lease liability at the acquisition date adjusted for any off-market terms of the lease.  The remaining lease term is based on the remaining term at the acquisition date plus any renewal or extension options that the Company is reasonably certain will be exercised.

Pension and Other Postretirement Liabilities

Ingersoll Rand recognized a pretax net liability representing the net funded status of Ingersoll Rand Industrial’s defined-benefit pension and other postretirement benefit (“OPEB”) plans.  See Note 7 “Benefit Plans” for further information on the pension and OPEB arrangements.

Long-Term Debt

Ingersoll Rand Services Company incurred $1,900.0 million of indebtedness under the Credit Agreement dated as of February 28, 2020 among Ingersoll Rand Services Company, as borrower, Citibank, N.A. as administrative agent and collateral agent and the lenders party thereto (the “Senior Secured Credit Facility”) prior to the closing of the acquisition, and the indebtedness under the Senior Secured Credit Facility will mature February 28, 2027 (or, if such date is not a business day the first business day thereafter).  Ingersoll Rand incurred a total of $26.9 million debt issuance costs associated with the $1,900.0 million loan under the Senior Secured Credit Facility. The $1,900.0 million of indebtedness under the Credit Agreement was reduced by a $2.4 million original issue discount.

The fair value for long term debt is determined based on the total indebtedness less debt issuance costs as the debt consummated at the time of closing of the acquisition.

Deferred Income Tax Assets and Liabilities

The acquisition was structured as a merger and therefore, the Company assumed the historical tax basis of Ingersoll Rand Industrial’s assets and liabilities. The deferred income tax assets and liabilities include the expected future federal, state and foreign tax consequences associated with temporary differences between the preliminary fair values of the assets acquired and liabilities assumed and the respective tax bases. Tax rates utilized in calculating deferred income taxes generally represent the enacted statutory tax rates at the effective date of the acquisition in the jurisdictions in which legal title of the underlying asset or liability resides.  See Note 13 “Income Taxes” for further information related to income taxes.

Noncontrolling Interests

Ingersoll Rand Industrial has a controlling interest of approximately 74% in Ingersoll-Rand India Limited.  The remaining shares are owned by unaffiliated shareholders and traded on India stock exchanges, representing a noncontrolling interest.  Ingersoll Rand’s preliminary fair value of noncontrolling interest is based on market quote of Indian Rupee 639.2 per share, available on the last trading day on February 28, 2020 prior to the closing date of the acquisition.  Considering noncontrolling shares of 8.2 million, the preliminary fair value of noncontrolling interest is $73.3 million.

Other Assets Acquired and Liabilities Assumed (excluding Goodwill)

The Company utilized the carrying values, net of allowances, to value accounts receivable and accounts payable as well as other current assets and liabilities as it was determined that carrying values represented the fair value of those items at the acquisition date.
18


Goodwill

The excess of the consideration for the acquisition over the preliminary fair value of net assets acquired was recorded as goodwill.  The estimated goodwill recognized is attributable primarily to expected synergies and expanded market opportunities from combining the Company’s operations with those of Ingersoll Rand Industrial.  The goodwill created in the acquisition is not expected to be deductible for tax purposes and is subject to material revision as the purchase price allocation is completed.  Goodwill arising from the acquisition has been allocated to the Industrial Technologies and Services, High Pressure Solutions, Precision and Science Technologies and Specialty Vehicle Technologies reporting segments.  See Note 5 “Goodwill and Other Intangible Assets” for the allocation of goodwill to segments.

Results of Ingersoll Rand Industrial Subsequent to the Acquisition

The operating results of Ingersoll Rand Industrial have been included in the Company’s condensed consolidated financial statements from the date of acquisition through June 30, 2020. The Company’s condensed consolidated statements of operations for the three and six month periods ended June 30, 2020 included revenues of $826.5 million and $1,119.9 million, respectively, and a net loss of $36.4 million and $69.7 million, respectively, which includes the effects of purchase accounting adjustments, primarily the amortization of intangible assets and the impacts on operating expenses of fair value adjustments to acquired inventory and property, plant and equipment.

Unaudited Pro Forma Information

The following unaudited pro forma financial information summarizes the combined results of operations for the Company and Ingersoll Rand Industrial as if the acquisition had been completed on January 1, 2019. The pro forma results have been prepared for comparative purposes only, and do not necessarily represent what the revenue or results of operations would have been had the acquisition been completed on January 1, 2019. In addition, these results are not intended to be a projection of future operating results and do not reflect synergies that might be achieved.

The unaudited pro forma information includes adjustments for the preliminary purchase price accounting impact (including, but not limited to, amortization and depreciation for intangible assets and property, plant and equipment acquired, adjustments to stock-based compensation expense, the purchase accounting effect on inventory acquired, the purchase accounting effect on deferred revenue, interest expense and amortization of debt issuance costs related to the fair value adjustment to long-term debt, transaction costs and related tax impacts) and the alignment of accounting policies.

The table below reflects the impact of material and nonrecurring adjustments to the unaudited pro forma results for the three month periods ended June 30, 2020 and 2019 that are directly attributable to the acquisition.

 
For the Three Month
Period Ended
June 30,
 
   
2020
   
2019
 
Increase (decrease) to revenue as a result of deferred revenue fair value adjustment, net of tax
 
$
5.6
   
$
(6.6
)
(Decrease) increase to expense as a result of inventory fair value adjustment, net of tax
   
(58.5
)
   
14.8
 
(Decrease) to expense as a result of transaction costs, net of tax
   
—
     
(14.6
)

The table below reflects the impact of material and nonrecurring adjustments to the unaudited pro forma results for the six months ended June 30, 2020 and 2019 that are directly attributable to the acquisition.

 
For the Six Month
Period Ended
June 30,
 
   
2020
   
2019
 
Increase (decrease) to revenue as a result of deferred revenue fair value adjustment, net of tax
 
$
5.5
   
$
(8.3
)
(Decrease) increase to expense as a result of inventory fair value adjustment, net of tax
   
(89.6
)
   
89.6
 
(Decrease) increase to expense as a result of transaction costs, net of tax
   
(38.1
)
   
64.0
 
19


The unaudited pro forma information presented below is for informational purposes only and is not necessarily indicative of the Company’s condensed consolidated results of operations of the combined business had the acquisition actually occurred at the beginning of fiscal year 2019 or of the results of the Company’s future results of operations of the combined businesses.

 
For the Three Month
Period Ended
June 30,
   
For the Six Month
Period Ended
June 30,
 
   
2020
   
2019
   
2020
   
2019
 
Revenues
 
$
1,271.6
   
$
1,589.6
   
$
2,541.3
   
$
3,089.6
 
Net Income (Loss)
   
7.0
     
44.2
     
6.8
     
(68.4
)

Transactions with Trane Technologies

Certain agreements have been entered into between Ingersoll Rand and Trane Technologies plc, including, among others, an Employee Matters Agreement, a Real Estate Matters Agreement, a Tax Matters Agreement, an Intellectual Property Matters Agreement and a Transition Services Agreement each dated February 29, 2020.  The Transition Services Agreement has a term of twenty four calendar months.  Charges for services under the agreement will be determined on an allocated cost basis, subject to an overall annual aggregate cap.  During the three month and six month period ended June 30, 2020, the Company incurred expense of $8.4 million and $10.8 million, respectively, for services received under the Transition Service Agreement and related agreements.

Note 3. Restructuring

Restructuring Program 2020 to 2022

Subsequent to the acquisition of Ingersoll Rand Industrial, the Company announced a restructuring program (“2020 Plan”) to drive efficiencies and synergies, reduce the number of facilities and optimize operating margin within the merged Company. The Company expects to incur total expenses of approximately $350.0 million related to workforce reductions, lease termination costs, other facility rationalization costs and other business related transformation costs from 2020 until 2022. The Company expects to realize approximately $250.0 million in annualized cost synergies by the end of 2022. The Company continues to evaluate operating efficiencies and anticipates incurring additional costs in the coming years in connection with these activities, but is unable to estimate those amounts at this time as such plans are not yet finalized.

Through June 30, 2020, $72.2 million was charged to expense through “Other operating expense, net” in the Condensed Consolidated Statements of Operations ($57.6 million for Industrial Technologies and Services, $4.9 million for Precision and Science Technologies, $4.1 million for High Pressure Solutions, $0.7 million for Specialty Vehicle Technologies and $4.9 million for Corporate).

The following table summarizes the activity associated with the Company’s restructuring programs for the six month period ended June 30, 2020.

 
Total
 
Balance as of December 31, 2019
 
$
5.0
 
Charged to expense - termination benefits
   
66.7
 
Charged to expense - other
   
5.5
 
Payments
   
(46.1
)
Currency translation adjustment and other
   
(1.7
)
Balance as of June 30, 2020
 
$
29.4
 

Note 4. Inventories

Inventories as of June 30, 2020 and December 31, 2019 consisted of the following.

 
June 30,
2020
   
December 31,
2019
 
Raw materials, including parts and subassemblies
 
$
654.2
   
$
370.5
 
Work-in-process
   
86.7
     
47.6
 
Finished goods
   
272.5
     
71.4
 
     
1,013.4
     
489.5
 
Excess of LIFO costs over FIFO costs
   
13.0
     
13.0
 
Inventories
 
$
1,026.4
   
$
502.5
 

Approximately $498.1 million of the increase in inventories from December 31, 2019 to June 30, 2020 is related to the acquisition of Ingersoll Rand Industrial. In the three month period ended June 30, 2020, the Company recorded non-cash adjustments of $45.9 million to reduce the carrying value of inventories acquired in the merger with Ingersoll Rand Industrial accounted for under the LIFO liquidation method.

20


Note 5. Goodwill and Other Intangible Assets

The changes in the carrying amount of goodwill attributable to each reportable segment for the six month period ended June 30, 2019 is presented in the table below.

 
Industrial
Technologies
and Services
   
Precision
and Science
Technologies
   
High
Pressure
Solutions
   
Specialty
Vehicle
Technologies
   
Total
 
Balance as of December 31, 2019
 
$
865.4
   
$
227.5
   
$
194.8
   
$
—
   
$
1,287.7
 
Acquisition
   
3,136.0
     
1,112.3
     
—
     
535.8
     
4,784.1
 
Foreign currency translation and other
   
(15.7
)
   
(0.9
)
   
—
     
(0.1
)
   
(16.7
)
Balance as of June 30, 2020
 
$
3,985.7
   
$
1,338.9
   
$
194.8
   
$
535.7
   
$
6,055.1
 

Other intangible assets as of June 30, 2020 and December 31, 2019 consisted of the following.

 
June 30, 2020
   
December 31, 2019
 
   
Gross
Carrying
Amount
   
Accumulated
Amortization
   
Gross
Carrying
Amount
   
Accumulated
Amortization
 
Amortized intangible assets
                       
Customer lists and relationships
 
$
3,325.8
   
$
(783.0
)
 
$
1,238.7
   
$
(673.9
)
Technology
   
268.6
     
(19.0
)
   
30.2
     
(6.0
)
Trademarks
   
39.9
     
(13.4
)
   
40.4
     
(11.9
)
Backlog
   
146.5
     
(98.2
)
   
-
     
-
 
Other
   
101.8
     
(50.6
)
   
64.0
     
(40.8
)
Unamortized intangible assets
                               
Trademarks
   
1,930.3
     
—
     
614.3
     
—
 
Total other intangible assets
 
$
5,812.9
   
$
(964.2
)
 
$
1,987.6
   
$
(732.6
)

Amortization of intangible assets is anticipated to be approximately $370.0 million in 2020 and $330.0 million to $360.0 million from 2021 through 2025 based upon the exchange rates as of June 30, 2020.

As of June 30, 2020, goodwill included $343.3 million of accumulated impairment losses within the High Pressure Solutions segment and $220.6 million of accumulated impairment losses within the Industrial Technologies and Services segment.

Due to the ongoing impacts of COVID-19 and geopolitical events on the upstream energy market, the Company determined that indicators of impairment existed for goodwill and an indefinite-lived tradename of a reporting unit within the High Pressure Solutions segment. As of June 30, 2020, quantitative impairment tests were performed and the calculated fair values of the reporting unit and tradename were found to be in excess of the respective carrying values, and therefore no impairments were recorded.

As of June 30, 2020, there was no indication that the carrying value of goodwill and other intangible assets associated with the Company’s other reporting units may not be recoverable.  However, a prolonged adverse impact of the COVID-19 pandemic on the Company’s consolidated financial results may require an impairment charge related to one or more of these assets in a future period.

There were no goodwill impairment charges recorded during the six month periods ended June 30, 2020 and 2019.

Note 6. Accrued Liabilities

Accrued liabilities as of June 30, 2020 and December 31, 2019 consisted of the following.

 
June 30,
2020
   
December 31,
2019
 
Salaries, wages and related fringe benefits
 
$
160.9
   
$
60.7
 
Contract liabilities
   
159.9
     
51.7
 
Product warranty
   
53.9
     
22.7
 
Operating lease liabilities
   
39.4
     
17.1
 
Restructuring
   
29.4
     
5.0
 
Taxes
   
167.0
     
22.5
 
Other
   
144.4
     
64.4
 
Total accrued liabilities
 
$
754.9
   
$
244.1
 

A reconciliation of the changes in the accrued product warranty liability for the three and six month periods ended June 30, 2020 and 2019 are as follows.

   
For the three month
period ended
June 30,
   
For the six month
period ended
June 30,
 
 
2020
   
2019
   
2020
   
2019
 
Balance at beginning of period
 
$
53.0
   
$
21.8
   
$
22.7
   
$
23.9
 
Product warranty accruals
   
2.7
     
7.8
     
10.8
     
14.6
 
Acquired warranty
   
—
     
—
     
31.3
     
—
 
Settlements
   
(2.2
)
   
(6.3
)
   
(10.8
)
   
(15.1
)
Charged to other accounts(1)
   
0.4
     
0.1
     
(0.1
)
   
—
 
Balance at end of period
 
$
53.9
   
$
23.4
   
$
53.9
   
$
23.4
 

(1)
Primarily the effects of foreign currency translation adjustments for the Company’s subsidiaries with functional currencies other than the USD.

21


Note 7. Benefit Plans

Acquisition of Ingersoll Rand Industrial

Defined Contribution Plans

In connection with the acquisition of Ingersoll Rand Industrial, the Company acquired certain defined contribution plans.  Most of the Ingersoll Rand Industrial employees in the U.S. are covered by a defined contribution plan.  Employer contributions are determined based on criteria specific to the individual.

Pension and Other Postretirement Benefit Plans

The Company acquired a number of pension and postretirement plans worldwide.  As of the date of acquisition of Ingersoll Rand Industrial, the Company recognized the funded status of the acquired defined benefit pension plans.  The funded status is the difference between the fair value of the plan assets and the projected benefit obligation.  Certain Company employees participate in various other postretirement benefit plans that are sponsored by Ingersoll Rand and cover certain U.S. and non – U.S. employees.  The other postretirement benefit plans are unfunded.  The Company funds the other postretirement plans on a pay-as-you-go basis in the form of direct benefit payments.  Other postretirement benefits are contributory with contributions adjusted for annually.  Life insurance plans for retirees are primarily noncontributory.

Deferred Compensation Plans

The Company acquired deferred compensation plans which allow certain key employees to defer a portion of their eligible compensation into a number of investment choices, including the Company’s common stock equivalents.  Except with respect to the Supplemental Employee Savings Plan I and II, which plans settle all investments in cash, any amounts invested in common stock are settled in shares of Ingersoll Rand common stock at the time of distribution.  All other investments are settled in cash.  The portion of the acquired deferred compensation to be settled in shares is accounted for in the consideration transferred.

Net Periodic Benefit Cost

The following table summarizes the components of net periodic benefit cost for the Company’s defined benefit pension plans and other postretirement benefit plans recognized for the three and six month periods ended June 30, 2020 and 2019.

 
Pension Benefits
   
Other Postretirement
 
   
U.S. Plans
   
Non-U.S. Plans
   
Benefits
 
   
For the
Three Month
Period Ended
June 30,
2020
   
For the
Six Month
Period Ended
June 30,
2020
   
For the
Three Month
Period Ended
June 30,
2020
   
For the
Six Month
Period Ended
June 30,
2020
   
For the
Three Month
Period Ended
June 30,
2020
   
For the
Six Month
Period Ended
June 30,
2020
 
Service cost
 
$
1.7
   
$
2.3
   
$
1.2
   
$
1.9
   
$
—
   
$
—
 
Interest cost
   
2.8
     
4.0
     
1.5
     
3.0
     
0.2
     
0.3
 
Expected return on plan assets
   
(3.9
)
   
(5.5
)
   
(2.7
)
   
(5.4
)
   
—
     
—
 
Recognition of:
                                               
Unrecognized prior service cost
   
—
     
—
     
0.1
     
0.1
     
—
     
—
 
Unrecognized net actuarial loss
   
—
     
—
     
0.7
     
1.4
     
—
     
—
 
   
$
0.6
   
$
0.8
   
$
0.8
   
$
1.0
   
$
0.2
   
$
0.3
 

 
Pension Benefits
   
Other Postretirement
 
   
U.S. Plans
   
Non-U.S. Plans
   
Benefits
 
   
For the
Three Month
Period Ended
June 30,
2019
   
For the
Six Month
Period Ended
June 30,
2019
   
For the
Three Month
Period Ended
June 30,
2019
   
For the
Six Month
Period Ended
June 30,
2019
   
For the
Three Month
Period Ended
June 30,
2019
   
For the
Six Month
Period Ended
June 30,
2019
 
Service cost
 
$
—
   
$
—
   
$
0.4
   
$
0.8
   
$
—
   
$
—
 
Interest cost
   
0.6
     
1.1
     
1.9
     
3.9
     
0.1
     
0.1
 
Expected return on plan assets
   
(0.6
)
   
(1.1
)
   
(2.6
)
   
(5.2
)
   
—
     
—
 
Recognition of:
                                               
Unrecognized prior service cost
   
—
     
—
     
0.1
     
0.1
     
—
     
—
 
Unrecognized net actuarial loss
   
—
     
0.1
     
0.5
     
1.0
     
—
     
—
 
   
$
—
   
$
0.1
   
$
0.3
   
$
0.6
   
$
0.1
   
$
0.1
 

The components of net periodic benefit cost other than the service cost component are included in “Other income, net” in the Condensed Consolidated Statements of Operations.

22


Note 8. Debt

Debt as of June 30, 2020 and December 31, 2019 is summarized as follows.

 
June 30,
2020
   
December 31,
2019
 
Short-term borrowings
 
$
—
   
$
—
 
Long-term debt:
               
Revolving credit facility, due 2024
 
$
—
   
$
—
 
Receivables financing agreement, due 2020
   
—
     
—
 
Dollar Term Loan, due 2024(1)
   
—
     
927.6
 
Euro Term Loan, due 2024(2)
   
—
     
673.9
 
Dollar Term Loan B, due 2027(3)
   
1,893.0
     
—
 
Dollar Term Loan, due 2027(4)
   
924.2
     
—
 
Euro Term Loan, due 2027(5)
   
672.7
     
—
 
Dollar Term Loan Series A, due 2027(6)
   
394.0
     
—
 
Finance leases and other long-term debt
   
17.6
     
18.0
 
Unamortized debt issuance costs
   
(45.0
)
   
(8.1
)
Total long-term debt, net, including current maturities
   
3,856.5
     
1,611.4
 
Current maturities of long-term debt
   
39.8
     
7.6
 
Total long-term debt, net
 
$
3,816.7
   
$
1,603.8
 

(1)
The weighted-average interest rate was 4.47% for the period from January 1, 2020 through February 27, 2020.

(2)
The weighted-average interest rate was 3.00% for the period from January 1, 2020 through February 27, 2020.

(3)
As of June 30, 2020, this amount is presented net of unamortized discounts of $2.3 million.  As of June 30, 2020, the applicable interest rate was 1.93% and the weighted-average interest rate was 2.54% for the six month period ended June 30, 2020.

(4)
As of June 30, 2020, this amount is presented net of unamortized discounts of $1.1 million.  As of June 30, 2020, the applicable interest rate was 1.93% and the weighted average interest rate was 3.16% for the six month period ended June 30, 2020.

(5)
As of June 30, 2020, this amount is presented net of unamortized discounts of $0.8 million.  As of June 30, 2020, the applicable interest rate was 2.00% and the weighted average interest rate was 2.32% for the six month period ended June 30, 2020.

(6)
As of June 30, 2020, this amount is presented net of unamortized discounts of $6.0 million.  As of June 30, 2020, the applicable interest rate was 2.93% and the weighted average interest rate was 2.93% for the period from June 29, 2020 through June 30, 2020.

Senior Secured Credit Facilities

The Company entered into a Senior Secured Credit Agreement (“Credit Agreement”) with UBS AG, Stamford Branch, as administrative agent, and other agents, lenders and parties thereto (the debt facilities under the Credit Agreement, the “Senior Secured Credit Facilities”) on July 30, 2013.  The Company entered into Amendment No. 1 to the Credit Agreement with UBS AG, Stamford Branch, as administrative agent, and the lenders and other parties thereto on March 4, 2016 (“Amendment No. 1”), Amendment No. 2 on August 17, 2017 (“Amendment No. 2”) and Amendment No. 3 on December 13, 2018 (“Amendment No. 3”).  Amendment No. 4 to the Credit Agreement, among other modifications, replaced UBS AG, as resigning agent, with Citibank, N.A. as successor agent, on June 28, 2019 (“Amendment No. 4”).

The Senior Secured Credit Facilities provided senior secured financing consisting of (i) a senior secured term loan facility denominated in U.S. dollars (as refinanced and otherwise modified from time to time prior to February 28, 2020, the “Original Dollar Term Loan”), (ii) a senior secured term loan facility denominated in Euros (as refinanced and otherwise modified from time to time prior to February 28, 2020, the “Original Euro Term Loan”) and (iii) a senior secured revolving credit facility (as refinanced and otherwise modified from time to time the “Revolving Credit Facility”).  The Revolving Credit Facility is available to be drawn in U.S. dollars (“USD”), Euros (“EUR”), Great British Pounds (“GBP”) and other reasonably accepted foreign currencies, subject to certain sublimits for the foreign currencies.

See Note 10 “Debt” to the consolidated financial statements in the Company’s annual report on Form 10-K for the year ended December 31, 2019 for further information on the amendments to the Senior Secured Credit Facilities.

On February 28, 2020, the Company entered into Amendment No. 5 to the Credit Agreement (“Amendment No. 5”).  Amendment No. 5 refinanced the existing Original Dollar Term Loan and Original Euro Term Loan.  The proceeds from the replacement $927.6 million Dollar Term Loan (“Dollar Term Loan”) and replacement €601.2 million Euro Term Loan (“Euro Term Loan”) were used to refinance the outstanding Original Dollar Term Loan and Original Euro Term Loan.  The proceeds from the Dollar Term Loan and the Euro Term Loan were reduced by an original issue discount of $1.2 million and €0.8 million, respectively.  The Euro Term Loan and Dollar Term Loan will mature on February 28, 2027 (or, if such date is not a business day, the first business day thereafter).  The refinancing of the Original Dollar Term Loan and the Original Euro Term Loan resulted in the write off of unamortized debt issuance costs of $2.0 million which was recorded to “Loss on extinguishment of debt” in the Condensed Consolidated Statements of Operations.

At the time of the acquisition of Ingersoll Rand Industrial, the Credit Agreement was amended to include an additional $1,900.0 million senior secured term loan (“Dollar Term Loan B”) by and among Ingersoll-Rand Services Company, as the borrower, the lenders party thereto and Citi, as the administrative agent.  Further, Ingersoll-Rand Services Company, the borrower with respect to the Dollar Term Loan B, was designated as an additional borrower under the Credit Agreement.  The Dollar Term Loan B and the Dollar Term Loan and the Euro Term Loan have guarantees from the same credit parties and are secured by the same collateral.  The Dollar Term Loan B will mature on February 28, 2027 (or, if such date is not a business day, the first business day thereafter). The proceeds from the $1,900.0 million Dollar Term Loan B were reduced by a $2.4 million original issue discount.
23


On the date of acquisition of Ingersoll Rand Industrial, the aggregate amount of the Revolving Credit Facility increased to $1,000.0 million and the capacity under the Revolving Credit Facility to issue letters of credit increased to $400.0 million.

On June 29, 2020, the Company entered into Amendment No. 6 to the Credit Agreement (“Amendment No. 6”).  Amendment No. 6  (i) provided for $400.0 million of incremental term loans (“Dollar Term Loan Series A”), reduced by an original issue discount of $6.0 million, and (ii) established an increase of $100.0 million to the Revolving Credit Facility, bringing the total sum of the Revolving Credit Facility to $1,100.0 million. No specific use of proceeds arising from Amendment No. 6 has been identified. The proceeds are expected to be used for general business purposes, including providing incremental liquidity in the event of a prolonged adverse impact of the COVID-19 pandemic.

As of June 30, 2020, the aggregate amount of commitments under the Revolving Credit Facility was $1,100.0 million and the capacity under the Revolving Credit Facility to issue letters of credit was $400.0 million. As of June 30, 2020, the Company had no outstanding borrowings under the Revolving Credit Facility, $85.3 million of outstanding letters of credit under the Revolving Credit Facility and unused availability under the Revolving Credit Facility of $1,014.7 million.

Interest Rates and Fees

Borrowings under the Dollar Term Loan, Dollar Term Loan B, Dollar Term Loan Series A, and Revolving Credit Facility bear interest at a rate equal to, at the Company’s option, either (a) the greater of LIBOR for the relevant interest period or 0.00% per annum, in each case adjusted for statutory reserve requirements, plus an applicable margin or (b) a base rate (the “Base Rate”) equal to the highest of (1) the rate of interest publicly announced by the administrative agent as its prime rate in effect at its principal office, (2) the federal funds effective rate plus 0.50%, (3) LIBOR for an interest period of one month, adjusted for statutory reserve requirements, plus 1.00% and (4) 1.00%, in each case, plus an applicable margin.  Borrowings under the Euro Term Loan bear interest at a rate equal to the greater of LIBOR for the relevant interest period, or 0.00% per annum, in each case adjusted for statutory reserve requirements, plus an applicable margin.  The applicable margin for (i) the Dollar Term Loan is 1.75% for LIBOR loans and 0.75% for base rate loans, (ii) the Dollar Term Loan B is 1.75% for LIBOR loans and 0.75% for base rate loans, (iii) the Dollar Term Loan Series A is 2.75% for LIBOR loans and 1.75% for base rate loans, (iv) the Revolving Credit Facility is 2.00% for LIBOR loans and 1.00% for Base Rate loans and (v) the Euro Term Loan is 2.00% for LIBOR loans.

In addition to payment interest on outstanding principal under the Senior Secured Credit Facilities, the Company is required to pay a commitment fee of 0.375% per annum to the lenders under the Revolving Credit Facility in respect of the unutilized commitments thereunder.  The commitment fee reduces to 0.25% or 0.125% upon the achievement of a Level I or Level II status, respectively.  Level I status means that the Company’s Consolidated First Lien Secured Debt to Consolidated EBITDA Ratio (as defined in the Senior Secured Credit Facilities) is less than or equal to 1.75 to 1.00.  Level II status means that the Company’s Consolidated First Lien Secured Debt to Consolidated EBITDA Ratio is less than or equal to 1.50 to 1.00.  The Company must also pay customary letter of credit fees.

Prepayments

The Senior Secured Credit Facilities require the Company to prepay outstanding term loans, subject to certain exceptions, with (i) 50% of annual excess cash flow (as defined in the Senior Credit Facilities) commencing with the fiscal year ending December 31, 2021 (which percentage will be reduced to 25% if the Company’s Consolidated First Lien Secured Debt to Consolidated EBITDA Ratio is less than or equal to 2.25 to 1.00 but greater than 2.00 to 1.00, and which prepayment will not be required if the Company’s Consolidated First Lien Secured Debt to Consolidated EBITDA Ratio is less than or equal to 2.00 to 1.00), (ii) 100% of the net cash proceeds of non-ordinary asset sales or other dispositions of property, subject to reinvestment rights (which percentage will be reduced to 50% if the Company’s Consolidated First Lien Secured Debt to Consolidated EBITDA Ratio is less than or equal to 2.25 to 1.00 but greater than 2.00 to 1.00 and which prepayment will not be required if the Company’s Consolidated First Lien Secured Debt to Consolidated EBITDA Ratio is less than or equal to 2.00 to 1.00), and (iii) 100% of the net cash proceeds of any incurrence of debt, other than proceeds from debt permitted under the Credit Agreement.

The mandatory prepayments will be applied to the scheduled installments of principal of the term loans in direct order of maturity.

The Company may voluntarily repay outstanding loans under the Senior Secured Credit Facilities at any time without premium or penalty, subject to certain customary conditions, including reimbursements of the lenders’ redeployment costs actually incurred in the case of a prepayment of LIBOR borrowings other than on the last day of the relevant interest period, provided that (i) any voluntary prepayment of the Dollar Term Loan, the Dollar Term Loan B or the Euro Term Loan prior to August 28, 2020, in connection with a repricing transaction shall be subject to a prepayment premium of 1.00% of the principal amount so prepaid and (ii) any voluntary prepayment of Dollar Term Loan Series A prior to December 29, 2020, in connection with a repricing transaction shall be subject to a prepayment premium of 1.00% of the principal amount so prepaid.

Amortization and Final Maturity

The Dollar Term Loan, Dollar Term Loan B, Dollar Term Loan Series A, and Euro Term Loan amortize in equal quarterly installments in aggregate annual amounts equal to 1.00% of the original principal amount of such term loan, with the balances payable on February 28, 2027 (or, if such date is not a business day, the first business day thereafter).

Guarantee and Security

All obligations of the borrowers under the Senior Secured Credit Facilities are unconditionally guaranteed by the Company and all of its material, wholly-owned U.S. restricted subsidiaries, with customary exceptions including where providing such guarantees are not permitted by law, regulation or contract or would result in adverse tax consequences.

All obligations of the borrowers under the Senior Secured Credit Facilities, and the guarantees of such obligations, are secured, subject to permitted liens and other exceptions, by substantially all of the assets of the borrowers and each guarantor, including but not limited to: (i) a perfected pledge of the capital stock issued by the borrowers and each subsidiary guarantor and (ii) perfected security interests in substantially all other tangible and intangible assets of the borrowers and the guarantors (subject to certain exceptions and exclusions). The obligations of the non-U.S. borrowers are secured by certain assets in jurisdictions outside of the United States.

Certain Covenants and Events of Default

The Senior Secured Credit Facilities contain a number of covenants that, among other things, restrict, subject to certain exceptions, the Company’s ability to: incur additional indebtedness and guarantee indebtedness; create or incur liens; engage in mergers or consolidations; sell, transfer or otherwise dispose of assets; create limitations on subsidiary distributions; pay dividends and distributions or repurchase its own capital stock; and make investments, loans or advances, prepayments of junior financings, or other restricted payments.
24


The Revolving Credit Facility requires that, if the sum of the aggregate principle amount of all borrowings under the Revolving Credit Facility and non-cash collateralized letters of credit outstanding under the Revolving Credit Facility (less the amount of letters of credit outstanding as of June 28, 2019) exceeds 40% of the commitments under the Revolving Credit Facility, the Company’s Consolidated First Lien Secured Debt to Consolidated EBITDA Ratio shall not exceed 6.25 to 1.00 as of the last day of the fiscal quarter.

The Senior Secured Credit Facilities also contain certain customary affirmative covenants and events of default.

Receivables Financing Agreement

On February 27, 2020, Gardner Denver, Inc., as initial servicer, Gardner Denver Finance II LLC, as borrower, and PNC Bank, National Association as lender, LC participant, LC bank, and administrative agent, entered into the third amendment (the “Third Amendment”) to the Receivables Financing Agreement dated as of May 17, 2016.  Among other changes, the Third Amendment extended the scheduled termination date of the Receivables Financing Agreement from June 30, 2020 to December 30, 2020 and amended the definition of “Change of Control” to (i) remove the requirement that certain specified equity holders maintain a minimum ownership level of the outstanding voting stock of the Company, (ii) increase the threshold at which the acquisition of ownership by a person, entity or group of other equity holders constitutes a “Change of Control” and (iii) make certain other technical changes and updates.  As of June 30, 2020, the Company had no outstanding borrowings, $26.6 million of letters of credit outstanding and $39.1 million of capacity available under the Receivables Financing Agreement.

Note 9. Stock-Based Compensation Plan

The Company has outstanding stock-based compensation awards granted under the 2013 Stock Incentive Plan (“2013 Plan”) and the 2017 Omnibus Incentive Plan (“2017 Plan”) as described in Note 17, “Stock-Based Compensation Plans” to the consolidated financial statements in its annual report on Form 10-K for the year ended December 31, 2019.

Acquisition of Ingersoll Rand Industrial

As of the acquisition date of February 29, 2020, Ingersoll Rand Industrial employees’ unvested equity awards and a limited number of vested awards were converted into equity awards denominated in shares of the Company’s common stock based on a defined exchange ratio.  Ingersoll Rand Industrial employees’ equity awards were converted into Ingersoll Rand stock options and restricted stock units.

For converted restricted stock units, the fair value of the equity award is based on the market price of the common stock on the grant date.  The replacement restricted stock units will generally be governed by the same terms and conditions as those applicable prior to the acquisition.  The portion of fair value of the replacement awards related to services provided prior to the acquisition was accounted for as consideration transferred.  The remaining portion of the fair value is associated with future service and will be recognized as compensation expense over the vesting period.

For converted stock options, the exercise price per share of the converted award was equal to the exercise price per share of the stock option award immediately prior to the completion of the acquisition divided by the exchange ratio. The replacement options will generally be governed by the same terms and conditions as those applicable prior to the acquisition.  The portion of fair value of the replacement awards related to services provided prior to the acquisition was accounted for as consideration transferred.  The remaining portion of fair value is associated with future service and will be recognized as compensation expense over the vesting period.  The fair value of stock options that the Company assumed in connection with the acquisition of Ingersoll Rand Industrial was estimated using the Black-Scholes model with the following assumptions.

Converted Stock Option Awards Assumptions
     
Expected life of options (in years)
   
2.0 - 3.6
 
Risk-free interest rate
   
0.9
%
Assumed volatility
   
34.2
%
Expected dividend rate
   
0.0
%
25


Stock-Based Compensation

For the three month periods ended June 30, 2020 and 2019, the Company recognized stock-based compensation expense of approximately $12.7 million and $6.0 million, respectively. For the six month periods ended June 30, 2020 and 2019, the Company recognized stock-based compensation expense of approximately $16.2 million and $13.6 million, respectively. These costs are included in “Cost of sales” and “Selling and administrative expenses” in the Condensed Consolidated Statements of Operations.

As of June 30, 2020, there was $64.5 million of total unrecognized compensation expense related to outstanding stock options, restricted stock unit awards and performance stock unit awards.

The Company’s stock-based compensation awards are typically granted in the first quarter of the year and primarily consist of stock options, restricted stock units and, commencing in 2020, performance share units.

Stock Option Awards

Stock options are granted to employees with an exercise price equal to the fair value of the Company’s per share common stock on the date of grant.  Stock option awards typically vest over four or five years and expire ten years from the date of grant.

A summary of the Company’s stock option (including SARs) activity for the six month period ended June 30, 2020 is presented in the following table (underlying shares in thousands).

 
Shares
   
Weighted-Average
Exercise Price
(per share)
 
Stock options outstanding as of December 31, 2019
   
8,028
   
$
14.14
 
Converted Ingersoll Rand Industrial stock options
   
985
     
24.72
 
Granted
   
1,460
     
24.77
 
Exercised or settled
   
(715
)
   
9.80
 
Forfeited
   
(121
)
   
27.30
 
Expired
   
(9
)
   
30.51
 
Stock options outstanding as of June 30, 2020
   
9,628
     
16.97
 
Vested as of June 30, 2020
   
6,054
     
11.73
 

The following assumptions were used to estimate the fair value of options granted (excluding previously disclosed modified awards) during the six month periods ended June 30, 2020 and 2019 using the Black-Scholes option-pricing model.

 
For the six month period ended
June 30,
 
Assumptions
 
2020
   
2019
 
Expected life of options (in years)
   
6.3
     
6.3
 
Risk-free interest rate
   
0.4% - 1.5
%
   
2.4% - 2.6
%
Assumed volatility
   
24.6% - 41.1
%
   
30.7% - 31.8
%
Expected dividend rate
   
0.0
%
   
0.0
%

Restricted Stock Unit Awards

Restricted stock units are granted to employees and non-employee directors based on the market price of the Company’s common stock on the grant date and recognized in compensation expense over the vesting period. A summary of the Company’s restricted stock unit activity for the six month period ended June 30, 2020 is presented in the following table (underlying shares in thousands).

 
Shares
   
Weighted-Average
Grant-Date
Fair Value
 
Non-vested as of December 31, 2019
   
719
   
$
29.31
 
Converted Ingersoll Rand Industrial restricted stock units
   
305
     
33.06
 
Granted
   
715
     
25.39
 
Vested
   
(224
)
   
29.41
 
Forfeited
   
(43
)
   
28.12
 
Non-vested as of June 30, 2020
   
1,472
     
28.20
 
26


Performance Share Unit Awards

Performance share units are granted to employees and are subject to a three year performance period.  The number of shares issued at the end of the performance period is determined by the Company’s total shareholder return percentile rank versus the S&P 500 index for the three year performance period.  The grant date fair value of these awards is determined using a Monte Carlo simulation pricing model and compensation cost is recognized straight-line over a three year period.  The Monte Carlo simulation pricing model for the fiscal year 2020 grants utilized the following assumptions: (i) expected term of 2.82 years (equal to the remaining performance measurement period at the grant date), (ii) volatility of 35.2%, (iii) risk-free interest rate of 0.52% and (iv) expected dividend rate of 0.0%.  Compensation expense is recognized based on the grant date fair value.

A summary of the Company’s performance stock unit activity for the six month period ended June 30, 2020 is presented in the following table (underlying shares in thousands).

 
Shares
   
Weighted-Average
Grant-Date
Fair Value
 
Non-vested as of December 31, 2019
   
—
   
$
—
 
Granted
   
302
     
29.72
 
Forfeited
   
(30
)
   
29.72
 
Non-vested as of June 30, 2020
   
272
     
29.72
 

Note 10. Accumulated Other Comprehensive (Loss) Income

The Company’s other comprehensive income (loss) consists of (i) unrealized foreign currency net gains and losses on the translation of the assets and liabilities of its foreign operations; (ii) realized and unrealized foreign currency gains and losses on intercompany notes of a long-term nature and certain hedges of net investments in foreign operations, net of income taxes; (iii) unrealized gains and losses on cash flow hedges (consisting of interest rate swaps), net of income taxes; and (iv) pension and other postretirement prior service cost and actuarial gains or losses, net of income taxes.  See Note 7 “Benefit Plans” and Note 11 “Hedging Activities and Fair Value Measurements.”

The before tax income (loss) and related income tax effect are as follows.

 
For the Three Month Period Ended
June 30, 2020
   
For the Six Month Period Ended
June 30, 2020
 
   
Before-Tax
Amount
   
Tax
Benefit
or (Expense)
   
Net of Tax
Amount
   
Before-Tax
Amount
   
Tax
Benefit
or (Expense)
   
Net of Tax
Amount
 
Foreign currency translation adjustments, net
 
$
41.9
   
$
3.0
   
$
44.9
   
$
(47.7
)
 
$
0.4
   
$
(47.3
)
Unrecognized gains on cash flow hedges, net
   
7.3
     
(1.8
)
   
5.5
     
8.8
     
(2.1
)
   
6.7
 
Pension and other postretirement benefit prior service cost and gain or loss, net
   
0.4
     
0.1
     
0.5
     
3.9
     
(0.5
)
   
3.4
 
Other comprehensive income (loss)
 
$
49.6
   
$
1.3
   
$
50.9
   
$
(35.0
)
 
$
(2.2
)
 
$
(37.2
)

 
For the Three Month Period Ended
June 30, 2019
   
For the Six Month Period Ended
June 30, 2019
 
   
Before-Tax
Amount
   
Tax
(Expense)
or Benefit
   
Net of Tax
Amount
   
Before-Tax
Amount
   
Tax
(Expense) or
Benefit
   
Net of Tax
Amount
 
Foreign currency translation adjustments, net
 
$
(8.6
)
 
$
2.2
   
$
(6.4
)
 
$
(4.1
)
 
$
(2.4
)
 
$
(6.5
)
Unrecognized gains (losses) on cash flow hedges, net
   
(0.7
)
   
0.2
     
(0.5
)
   
0.6
     
0.8
     
1.4
 
Pension and other postretirement benefit prior service cost and gain or loss, net
   
1.3
     
(0.1
)
   
1.2
     
1.5
     
(0.1
)
   
1.4
 
Other comprehensive loss
 
$
(8.0
)
 
$
2.3
   
$
(5.7
)
 
$
(2.0
)
 
$
(1.7
)
 
$
(3.7
)

The tables above include only the other comprehensive (loss) income, net of tax, attributable to Ingersoll Rand Inc. Other comprehensive (loss) income, net, attributable to noncontrolling interest holders was $(0.4) million and $(4.4) million for the three and six months ended June 30, 2020, respectively, and related entirely to foreign currency translation adjustments.

On January 1, 2019, the Company adopted ASU 2018-02 which reclassified stranded tax effects resulting from the Tax Cuts and Jobs Act from accumulated other comprehensive (loss) income to retained (deficit) earnings.  The Company recorded a cumulative-effect adjustment which increased “Accumulated other comprehensive loss” in the Condensed Consolidated Balance Sheet by $8.2 million.
27


Changes in accumulated other comprehensive (loss) income by component for the six month periods ended June 30, 2020 and 2019 are presented in the following table (1).

 
Foreign
Currency
Translation
Adjustments, Net
   
Unrealized
(Losses) Gains
on Cash Flow
Hedges
   
Pension and
Postretirement
Benefit Plans
   
Total
 
Balance as of December 31, 2019
 
$
(193.6
)
 
$
(10.9
)
 
$
(51.5
)
 
$
(256.0
)
Other comprehensive (loss) income before reclassifications
   
(47.3
)
   
(3.2
)
   
2.3
     
(48.2
)
Amounts reclassified from accumulated other comprehensive (loss) income
   
—
     
9.9
     
1.1
     
11.0
 
Other comprehensive (loss) income
   
(47.3
)
   
6.7
     
3.4
     
(37.2
)
Balance as of June 30, 2020
 
$
(240.9
)
 
$
(4.2
)
 
$
(48.1
)
 
$
(293.2
)

 
Foreign
Currency
Translation
Adjustments, Net
   
Unrealized
(Losses) Gains
on Cash Flow
Hedges
   
Pension and
Postretirement
Benefit Plans
   
Total
 
Balance as of December 31, 2018
 
$
(190.6
)
 
$
(11.4
)
 
$
(45.0
)
 
$
(247.0
)
Other comprehensive (loss) income before reclassifications
   
(6.5
)
   
(4.4
)
   
0.5
     
(10.4
)
Amounts reclassified from accumulated other comprehensive (loss) income
   
—
     
5.8
     
0.9
     
6.7
 
Other comprehensive (loss) income
   
(6.5
)
   
1.4
     
1.4
     
(3.7
)
Cumulative effect adjustment upon adoption of new accounting standard (ASU 2018-02)
   
(1.5
)
   
(6.7
)
   
—
     
(8.2
)
Balance as of June 30, 2019
 
$
(198.6
)
 
$
(16.7
)
 
$
(43.6
)
 
$
(258.9
)

(1)
All amounts are net of tax. Amounts in parentheses indicate debits.

Reclassifications out of accumulated other comprehensive (loss) income for the six month periods ended June 30, 2020 and 2019 are presented in the following table.

Amount Reclassified from Accumulated Other Comprehensive (Loss) Income
 
Details about Accumulated
Other Comprehensive
(Loss) Income Components
 
For the six month period ended
June 30,
   
Affected Line in the
Statement Where Net
Income is Presented
 
   
2020
   
2019
       
                   
Loss on cash flow hedges
 
$
13.2
   
$
7.6
   
Interest expense
 
Interest rate swaps
   
(3.3
)
   
(1.8
)
 
Benefit for income taxes
 
   
$
9.9
   
$
5.8
   
Net of tax
 
                       
Amortization of defined benefit pension and other postretirement benefit items
 
$
1.5
   
$
1.2
(1) 
   
(1
)
     
(0.4
)
   
(0.3
)
 
Benefit for income taxes
 
   
$
1.1
   
$
0.9
   
Net of tax
 
Total reclassifications for the period
 
$
11.0
   
$
6.7
   
Net of tax
 

(1)
These components are included in the computation of net periodic benefit cost.  See Note 7 “Benefit Plans” for additional details.

Note 11. Hedging Activities and Fair Value Measurements

Hedging Activities

The Company is exposed to certain market risks during the normal course of its business arising from adverse changes in interest rates and foreign currency exchange rates. The Company selectively uses derivative financial instruments (‘‘derivatives’’), including foreign currency forward contracts and interest rate swaps, to manage the risks from fluctuations in foreign currency exchange rates and interest rates, respectively. The Company does not purchase or hold derivatives for trading or speculative purposes. Fluctuations in interest rates and foreign currency exchange rates can be volatile, and the Company’s risk management activities do not totally eliminate these risks. Consequently, these fluctuations could have a significant effect on the Company’s financial results.

The Company’s exposure to interest rate risk results primarily from its variable-rate borrowings. The Company manages its debt centrally, considering tax consequences and its overall financing strategies. The Company manages its exposure to interest rate risk by maintaining a mixture of fixed and variable rate debt and, from time to time, using pay-fixed interest rate swaps as cash flow hedges of variable rate debt in order to adjust the relative fixed and variable proportions.
28


A substantial portion of the Company’s operations is conducted by its subsidiaries outside of the United States in currencies other than the USD. Almost all of the Company’s non-U.S. subsidiaries conduct their business primarily in their local currencies, which are also their functional currencies. Other than the USD, the EUR, GBP, and Chinese Renminbi are the principal currencies in which the Company and its subsidiaries enter into transactions. The Company is exposed to the impacts of changes in foreign currency exchange rates on the translation of its non-U.S. subsidiaries’ assets, liabilities and earnings into USD. The Company has certain U.S. subsidiaries borrow in currencies other than the USD.

The Company and its subsidiaries are also subject to the risk that arises when they, from time to time, enter into transactions in currencies other than their functional currency. To mitigate this risk, the Company and its subsidiaries typically settle intercompany trading balances monthly. The Company also selectively uses forward currency contracts to manage this risk. These contracts for the sale or purchase of European and other currencies generally mature within one year.

Derivative Instruments

The following table summarizes the notional amounts, fair values and classification of the Company’s outstanding derivatives by risk category and instrument type within the Condensed Consolidated Balance Sheets as of June 30, 2020 and December 31, 2019.

June 30, 2020
 
Derivative
Classification
 
Notional
Amount (1)
   
Fair Value (1)
Other Current
Assets
   
Fair Value (1)
Other Assets
   
Fair Value (1)
Accrued
Liabilities
   
Fair Value (1)
Other
Liabilities
 
                                 
Derivatives Designated as Hedging Instruments
                               
Interest rate swap contracts
Cash Flow
 
$
725.0
   
$
—
   
$
—
   
$
4.5
   
$
—
 
Derivatives Not Designated as Hedging Instruments
                                         
Foreign currency forwards
Fair Value
   
144.4
     
0.4
     
—
     
—
     
—
 
Foreign currency forwards
Fair Value
   
139.4
     
—
     
—
     
0.1
     
—
 

December 31, 2019
 
Derivative
Classification
 
Notional
Amount (1)
   
Fair Value (1)
Other Current
Assets
   
Fair Value (1)
Other Assets
   
Fair Value (1)
Accrued
Liabilities
   
Fair Value (1)
Other
Liabilities
 
                                 
Derivatives Designated as Hedging Instruments
                               
Interest rate swap contracts
Cash Flow
 
$
825.0
   
$
—
   
$
—
   
$
13.1
   
$
—
 
Derivatives Not Designated as Hedging Instruments
                                         
Foreign currency forwards
Fair Value
   
55.2
     
0.5
     
—
     
—
     
—
 
Foreign currency forwards
Fair Value
   
106.9
     
—
     
—
     
0.5
     
—
 

(1)
Notional amounts represent the gross contract amounts of the outstanding derivatives excluding the total notional amount of positions that have been effectively closed through offsetting positions.  The net gains and net losses associated with positions that have been effectively closed through offsetting positions but not yet settled are included in the asset and liability derivatives fair value columns, respectively.

Losses on derivatives designated as cash flow hedges included in the Condensed Consolidated Statements of Comprehensive (Loss) Income for the three and six month periods ended June 30, 2020 and 2019 are as presented in the table below.

 
For the Three
Month Period
Ended
June 30,
   
For the Six
Month Period
Ended
June 30,
 
   
2020
   
2019
   
2020
   
2019
 
Interest rate swap contracts
                       
Loss recognized in AOCI on derivatives
 
$
(0.6
)
 
$
(4.6
)
 
$
(4.3
)
 
$
(7.0
)
Loss reclassified from AOCI into income (effective portion)(1)
   
(7.9
)
   
(3.9
)
   
(13.2
)
   
(7.6
)

(1)
Losses on derivatives reclassified from accumulated other comprehensive income (“AOCI”) into income were included within “Interest expense” in the Condensed Consolidated Statements of Operations.
29


As of June 30, 2020, the Company is the fixed rate payor on four interest rate swap contracts that effectively fix the LIBOR-based index used to determine the interest rates charged on a total of $725.0 million of the Company’s LIBOR-based variable rate borrowings.  These contracts carry fixed rates ranging from 3.6% to 4.3% and expire in 2020.  These swap agreements qualify as hedging instruments and have been designated as cash flow hedges of forecasted LIBOR-based interest payments.  Based on LIBOR-based swap yield curves as of June 30, 2020, the Company expects to reclassify losses of $5.3 million out of AOCI into earnings during the next 12 months.  The Company’s LIBOR-based variable rate borrowings outstanding as of June 30, 2020 were $3,211.2 million and €598.9 million.

The Company had nine foreign currency forward contracts outstanding as of June 30, 2020 with notional amounts ranging from $75.1 million to $5.2 million. These contracts are used to hedge the change in fair value of recognized foreign currency denominated assets or liabilities caused by changes in currency exchange rates.  The changes in the fair value of these contracts generally offset the changes in the fair value of a corresponding amount of the hedged items, both of which are included within “Other operating expense, net” in the Condensed Consolidated Statements of Operations.  The Company’s foreign currency forward contracts are subject to master netting arrangements or agreements between the Company and each counterparty for the net settlement of all contracts through a single payment in a single currency in the event of default on or termination of any one contract with that certain counterparty.  It is the Company’s practice to recognize the gross amounts in the Condensed Consolidated Balance Sheets.  The amount available to be netted is not material.

The Company’s gains (losses) on derivative instruments not designated as accounting hedges and total net foreign currency losses for the three and six month periods ended June 30, 2020 and 2019 were as follows.

 
For the Three
Month Period
Ended
June 30,
   
For the Six
Month Period
Ended
June 30,
 
   
2020
   
2019
   
2020
   
2019
 
Foreign currency forward contracts gains (losses)
 
$
0.5
   
$
(2.2
)
 
$
(2.1
)
 
$
(3.8
)
Total foreign currency transaction losses, net
   
(5.2
)
   
(0.6
)
   
(7.8
)
   
(3.7
)

The Company has a significant investment in consolidated subsidiaries with functional currencies other than the USD, particularly the EUR.  On August 17, 2017, the Company designated its €615.0 million Original Euro Term Loan as a hedge of the Company’s net investment in subsidiaries with EUR functional currencies until it was extinguished and replaced on February 28, 2020 by a €601.2 million Euro Term Loan, further described in Note 8 “Debt”.  As of June 30, 2020, the Euro Term Loan of €598.9 million remained designated.

The Company’s (loss) gains, net of income tax, associated with changes in the value of debt for the three month periods ended June 30, 2020 and 2019 were as follows.

 
For the Three
Month Period
Ended
June 30,
   
For the Six
Month Period
Ended
June 30,
 
   
2020
   
2019
   
2020
   
2019
 
(Loss) gain, net of income tax, recorded through other comprehensive income
 
$
(9.1
)
 
$
(7.0
)
 
$
0.9
   
$
4.7
 

The net balance of such (losses) gains included in accumulated other comprehensive (loss) income as of June 30, 2020 and 2019 was $74.9 million and $61.3 million, respectively.

For the periods presented, all cash flows associated with derivatives are classified as operating cash flows in the Condensed Consolidated Statements of Cash Flows.

Fair Value Measurements

A financial instrument is defined as cash or cash equivalents, evidence of an ownership interest in an entity, or a contract that creates a contractual obligation or right to deliver or receive cash or another financial instrument from another party. The Company’s financial instruments consist primarily of cash and cash equivalents, trade accounts receivables, trade accounts payables, deferred compensation assets and obligations, derivatives and debt instruments. The carrying values of cash and cash equivalents, trade accounts receivables, trade accounts payables, and variable rate debt instruments are a reasonable estimate of their respective fair values.

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or more advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The fair value hierarchy is based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value as follows.

Level 1
Quoted prices (unadjusted) in active markets for identical assets or liabilities as of the reporting date.

Level 2
Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities as of the reporting date.

Level 3
Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
30


The following tables summarize the Company’s financial assets and liabilities measured at fair value on a recurring basis as of June 30, 2020 and December 31, 2019.

   
June 30, 2020
 
 
Level 1
   
Level 2
   
Level 3
   
Total
 
Financial Assets
                       
Foreign currency forwards(1)
 
$
—
   
$
0.4
   
$
—
   
$
0.4
 
Trading securities held in deferred compensation plan(2)
   
7.0
     
—
     
—
     
7.0
 
Total
 
$
7.0
   
$
0.4
   
$
—
   
$
7.4
 
Financial Liabilities
                               
Foreign currency forwards(1)
 
$
—
   
$
0.1
   
$
—
   
$
0.1
 
Deferred compensation plans(2)
   
19.2
     
—
     
—
     
19.2
 
Interest rate swaps(3)
   
—
     
4.5
     
—
     
4.5
 
Total
 
$
19.2
   
$
4.6
   
$
—
   
$
23.8
 

   
December 31, 2019
 
   
Level 1
   
Level 2
   
Level 3
   
Total
 
Financial Assets
                       
Foreign currency forwards(1)
 
$
—
   
$
0.5
   
$
—
   
$
0.5
 
Trading securities held in deferred compensation plan(2)
   
7.3
     
—
     
—
     
7.3
 
Total
 
$
7.3
   
$
0.5
   
$
—
   
$
7.8
 
Financial Liabilities
                               
Foreign currency forwards(1)
 
$
—
   
$
0.5
   
$
—
   
$
0.5
 
Deferred compensation plan(2)
   
7.3
     
—
     
—
     
7.3
 
Interest rate swaps(3)
   
—
     
13.1
     
—
     
13.1
 
Total
 
$
7.3
   
$
13.6
   
$
—
   
$
20.9
 

(1)
Based on calculations that use readily observable market parameters at their basis, such as spot and forward rates.

(2)
Based on the quoted price of publicly traded mutual funds and other equity securities which are classified as trading securities and accounted for using the mark-to-market method.

(3)
Measured as the present value of all expected future cash flows based on the LIBOR-based swap yield curves as of June 30, 2020.  The present value calculation uses discount rates that have been adjusted to reflect the credit quality of the Company and its counterparties.

Note 12. Revenue from Contracts with Customers

Overview

The Company recognizes revenue when the Company has satisfied its obligation and control is transferred to the customer. The amount of revenue recognized includes adjustments for any variable consideration, such as rebates, sales discounts, liquidated damages, etc., which are included in the transaction price, and allocated to each performance obligation. The variable consideration is estimated throughout the course of the contract using the Company’s best estimates.

The majority of the Company’s revenues are derived from short duration contracts and revenue is recognized at a single point in time when control is transferred to the customer, generally at shipment or when delivery has occurred or services have been rendered.

The Company has certain long duration engineered to order (‘‘ETO’’) contracts that require highly engineered solutions designed to customer specific applications. For contracts where the contractual deliverables have no alternative use and the contract termination clauses provide for the recovery of cost plus a reasonable margin, revenue is recognized over time based on the Company’s progress in satisfying the contractual performance obligations, generally measured as the ratio of actual costs incurred to date to the estimated total costs to complete the contract. For contracts with termination provisions that do not provide for recovery of cost and a reasonable margin, revenue is recognized at a point in time, generally at shipment or delivery to the customer. Identification of performance obligations, determination of alternative use, assessment of contractual language regarding termination provisions, and estimation of total project costs are all significant judgments required in the application of ASC 606.

Contractual specifications and requirements may be modified. The Company considers contract modifications to exist when the modification either creates new or changes the existing enforceable rights and obligations. In the event a contract modification is for goods or services that are not distinct in the contract, and therefore, form part of a single performance obligation that is partially satisfied as of the modification date, the effect of the contract modification on the transaction price and the Company’s measure of progress for the performance obligation to which it relates, is recognized on a cumulative catch-up basis.

Taxes assessed by a government authority that are both imposed on and concurrent with a specific revenue-producing transaction, that are collected by the Company from a customer, are excluded from revenue. Sales commissions are due at either collection of payment from customers or recognition of revenue. Applying the practical expedient from ASC 340-40-25-4, the Company recognizes the incremental costs of obtaining contracts as an expense when incurred if the amortization period of the assets that the Company otherwise would have recognized is one year or less. These costs are included in ‘‘Selling and administrative expenses’’ in the Condensed Consolidated Statements of Operations.
31


Disaggregation of Revenue

The following tables provide disaggregated revenue by reportable segment for the three month periods ended June 30, 2020 and 2019.

 
For the Three Month Period Ended
June 30, 2020
 
   
Industrial
Technologies
and Services
   
Precision and
Science
Technologies
   
High Pressure
Solutions
   
Specialty
Vehicle
Technologies
   
Total
 
Primary Geographic Markets
                             
United States
 
$
289.8
   
$
83.7
   
$
17.3
   
$
191.1
   
$
581.9
 
Other Americas
   
70.5
     
9.9
     
0.6
     
12.1
     
93.1
 
Total Americas
   
360.3
     
93.6
     
17.9
     
203.2
     
675.0
 
EMEAI
   
247.1
     
63.7
     
2.3
     
6.7
     
319.8
 
Asia Pacific
   
222.2
     
38.5
     
1.3
     
7.6
     
269.6
 
Total
 
$
829.6
   
$
195.8
   
$
21.5
   
$
217.5
   
$
1,264.4
 
                                         
Product Categories
                                       
Original equipment
 
$
502.0
   
$
169.1
   
$
3.5
   
$
160.0
   
$
834.6
 
Aftermarket
   
327.6
     
26.7
     
18.0
     
57.5
     
429.8
 
Total
 
$
829.6
   
$
195.8
   
$
21.5
   
$
217.5
   
$
1,264.4
 
                                         
Pattern of Revenue Recognition
                                       
Revenue recognized at point in time(1)
 
$
750.1
   
$
195.8
   
$
21.5
   
$
212.0
   
$
1,179.4
 
Revenue recognized over time(2)
   
79.5
     
—
     
—
     
5.5
     
85.0
 
Total
 
$
829.6
   
$
195.8
   
$
21.5
   
$
217.5
   
$
1,264.4
 

 
For the Three Month Period Ended
June 30, 2019
 
   
Industrial
Technologies
and Services
   
Precision and
Science
Technologies
   
High Pressure
Solutions
   
Specialty
Vehicle
Technologies
   
Total
 
Primary Geographic Markets
                             
United States
 
$
129.1
   
$
39.1
   
$
105.8
   
$
—
   
$
274.0
 
Other Americas
   
35.4
     
1.5
     
9.2
     
—
     
46.1
 
Total Americas
   
164.5
     
40.6
     
115.0
     
—
     
320.1
 
EMEAI
   
178.9
     
27.8
     
2.6
     
—
     
209.3
 
Asia Pacific
   
84.2
     
13.6
     
1.9
     
—
     
99.7
 
Total
 
$
427.6
   
$
82.0
   
$
119.5
   
$
—
   
$
629.1
 
                                         
Product Categories
                                       
Original equipment
 
$
289.7
   
$
79.9
   
$
24.4
   
$
—
   
$
394.0
 
Aftermarket
   
137.9
     
2.1
     
95.1
     
—
     
235.1
 
Total
 
$
427.6
   
$
82.0
   
$
119.5
   
$
—
   
$
629.1
 
                                         
Pattern of Revenue Recognition
                                       
Revenue recognized at point in time(1)
 
$
396.2
   
$
82.0
   
$
119.5
   
$
—
   
$
597.7
 
Revenue recognized over time(2)
   
31.4
     
—
     
—
     
—
     
31.4
 
Total
 
$
427.6
   
$
82.0
   
$
119.5
   
$
—
   
$
629.1
 

(1)
Revenues from short and long duration product and service contracts recognized at a point in time when control is transferred to the customer generally when products delivery has occurred and services have been rendered.

(2)
Revenues primarily from long duration ETO product contracts and certain contracts for delivery of a significant volume of substantially similar products recognized over time as contractual performance obligations are completed.
32


The following tables provide disaggregated revenue by reportable segment for the six month periods ended June 30, 2020 and 2019.

 
For the Six Month Period Ended
June 30, 2020
 
   
Industrial
Technologies
and Services
   
Precision
and Science
Technologies
   
High Pressure
Solutions
   
Specialty
Vehicle
Technologies
   
Total
 
Primary Geographic Markets
                             
United States
 
$
466.9
   
$
133.0
   
$
98.0
   
$
264.8
   
$
962.7
 
Other Americas
   
115.8
     
14.8
     
10.8
     
16.8
     
158.2
 
Total Americas
   
582.7
     
147.8
     
108.8
     
281.6
     
1,120.9
 
EMEAI
   
447.7
     
104.6
     
6.4
     
12.2
     
570.9
 
Asia Pacific
   
303.2
     
56.2
     
2.6
     
10.5
     
372.5
 
Total
 
$
1,333.6
   
$
308.6
   
$
117.8
   
$
304.3
   
$
2,064.3
 
                                         
Product Categories
                                       
Original equipment
 
$
805.2
   
$
268.1
   
$
16.0
   
$
232.7
   
$
1,322.0
 
Aftermarket
   
528.4
     
40.5
     
101.8
     
71.6
     
742.3
 
Total
 
$
1,333.6
   
$
308.6
   
$
117.8
   
$
304.3
   
$
2,064.3
 
                                         
Pattern of Revenue Recognition
                                       
Revenue recognized at point in time(1)
 
$
1,209.6
   
$
308.6
   
$
117.8
   
$
297.3
   
$
1,933.3
 
Revenue recognized over time(2)
   
124.0
     
—
     
—
     
7.0
     
131.0
 
Total
 
$
1,333.6
   
$
308.6
   
$
117.8
   
$
304.3
   
$
2,064.3
 

 
For the Six Month Period Ended
June 30, 2019
 
   
Industrial
Technologies
and Services
   
Precision
and Science
Technologies
   
High Pressure
Solutions
   
Specialty
Vehicle
Technologies
   
Total
 
Primary Geographic Markets
                             
United States
 
$
245.6
   
$
76.9
   
$
220.7
   
$
—
   
$
543.2
 
Other Americas
   
65.0
     
2.2
     
22.9
     
—
     
90.1
 
Total Americas
   
310.6
     
79.1
     
243.6
     
—
     
633.3
 
EMEAI
   
369.9
     
56.0
     
7.7
     
—
     
433.6
 
Asia Pacific
   
152.2
     
26.2
     
4.1
     
—
     
182.5
 
Total
 
$
832.7
   
$
161.3
   
$
255.4
   
$
—
   
$
1,249.4
 
                                         
Product Categories
                                       
Original equipment
 
$
563.5
   
$
156.5
   
$
49.3
   
$
—
   
$
769.3
 
Aftermarket
   
269.2
     
4.8
     
206.1
     
—
     
480.1
 
Total
 
$
832.7
   
$
161.3
   
$
255.4
   
$
—
   
$
1,249.4
 
                                         
Pattern of Revenue Recognition
                                       
Revenue recognized at point in time(1)
 
$
773.8
   
$
161.3
   
$
255.4
   
$
—
   
$
1,190.5
 
Revenue recognized over time(2)
   
58.9
     
—
     
—
     
—
     
58.9
 
Total
 
$
832.7
   
$
161.3
   
$
255.4
   
$
—
   
$
1,249.4
 

(1)
Revenues from short and long duration product and service contracts recognized at a point in time when control is transferred to the customer generally when products delivery has occurred and services have been rendered.

(2)
Revenues primarily from long duration ETO product contracts and certain contracts for delivery of a significant volume of substantially similar products recognized over time as contractual performance obligations are completed.
33


Performance Obligations

The majority of the Company’s contracts have a single performance obligation as the promise to transfer goods and/or services.  For contracts with multiple performance obligations, the Company utilizes observable prices to determine standalone selling price or cost plus margin if a standalone price is not available. The Company has elected to account for shipping and handling activities as fulfillment costs and not a separate performance obligation.  If control transfers and related revenue is recognized for the related good before the shipping and handling activities occur, the related costs of those shipping and handling activities are accrued.

The Company’s primary performance obligations include delivering standard or configured to order (“CTO”) goods to customers, designing and manufacturing a broad range of equipment customized to a customer’s specifications in ETO arrangements, rendering of services (maintenance and repair contracts), and certain extended or service type warranties.  For incidental items that are immaterial in the context of the contract, costs are expensed as incurred or accrued at delivery.

As of June 30, 2020, for contracts with an original duration greater than one year, the Company expects to recognize revenue in the future related to unsatisfied (or partially satisfied) performance obligations of $378.3 million in the next twelve months and $277.8 million in periods thereafter. The performance obligations that are unsatisfied (or partially satisfied) are primarily related to orders for goods or services that were placed prior to the end of the reporting period and have not been delivered to the customer, on-going work on ETO contracts where revenue is recognized over time and service contracts with an original duration greater than one year.

Contract Balances

The following table provides the contract balances as of June 30, 2020 and December 31, 2019 presented in the Condensed Consolidated Balance Sheets.

 
June 30,
2020
   
December 31,
2019
 
Accounts receivable
 
$
922.2
   
$
459.1
 
Contract assets
   
53.2
     
29.0
 
Contract liabilities
   
163.4
     
51.7
 

Accounts receivable – Amounts due where the Company’s right to receive cash is unconditional. As of June 30, 2020, approximately $575.6 million of the increase in accounts receivable related to the acquisition of Ingersoll Rand Industrial. In the three month period ended June 30, 2020, the Company increased its allowance for doubtful accounts by $12.5 million in response to a filing for Chapter 11 bankruptcy protection of a customer in the High Pressure Solutions segment.

Contract assets – The Company’s rights to consideration for the satisfaction of performance obligations subject to constraints apart from timing. Contract assets are transferred to receivables when the right to collect consideration becomes unconditional. Contract assets are presented net of progress billings and related advances from customers.  As of June 30, 2020, approximately $17.5 million increase in contract assets related to the acquisition of Ingersoll Rand Industrial.

Contract liabilities – Advance payments received from customers for contracts for which revenue is not yet recognized. Contract liability balances are generally recognized in revenue within twelve months.  As of June 30, 2020, approximately $106.8 million increase in contract liabilities receivable related to the acquisition of Ingersoll Rand Industrial.

Contract assets and liabilities are reported in the Condensed Consolidated Balance Sheets on a contract-by-contract basis at the end of each reporting period.  Contract assets and liabilities are presented net on a contract level, where required.

Payments from customers are generally due 30-60 days after invoicing. Invoicing for sales of standard products generally coincides with shipment or delivery of goods. Invoicing for CTO and ETO contracts typically follows a schedule for billing at contractual milestones. Payment milestones normally include down payments upon the contract signing, completion of product design, completion of customer’s preliminary inspection, shipment or delivery, completion of installation, and customer’s on-site inspection. The timing of revenue recognition, billings and cash collections results in billed accounts receivable, unbilled receivables (contract assets) and customer advances and deposits (contract liabilities) on the Condensed Consolidated Balance Sheets.
34


The Company has elected the practical expedient from ASC 606-10-32-18 and does not adjust the transaction price for the effects of a financing component if, at contract inception, the period between when the Company transfers a promised good or service to a customer and when the customer pays for that good or service will be one year or less.

Note 13. Income Taxes

The following table summarizes the Company’s provision for income taxes and effective income tax provision rate for the three and six month periods ended June 30, 2020 and 2019.

 
For the Three
Month Period
Ended
June 30,
   
For the Six
Month Period
Ended
June 30,
 
   
2020
   
2019
   
2020
   
2019
 
(Loss) income before income taxes
 
$
(80.7
)
 
$
53.2
   
$
(176.4
)
 
$
112.4
 
Provision for income taxes
 
$
95.8
   
$
8.3
   
$
37.0
   
$
20.3
 
Effective income tax provision rate
   
(118.7
%)
   
15.6
%
   
(21.0
%)
   
18.1
%

The increase in the provision for income taxes and decrease in the effective income tax provision rate for the three month period ended June 30, 2020 when compared to the same three month period of 2019 is primarily due to a reduction in the pre-tax book income in jurisdictions with lower effective tax rates combined with significant earnings in jurisdictions with higher tax rates. The reduction in pre-tax book income is mainly from the COVID-19 global pandemic, transaction costs associated with the acquisition, and amortization and depreciation expenses associated with the purchase price step up adjustments.

The increase in the provision for income taxes and decrease in the effective income tax provision rate for the six month period ended June 30, 2020 when compared to the same six month period of 2019 is primarily due to a reduction in the pre-tax book income in jurisdictions with lower effective tax rates combined with significant earnings in jurisdictions with higher tax rates. The reduction in pre-tax book income is mainly from the COVID-19 global pandemic, transaction costs associated with the acquisition, and amortization and depreciation expenses associated with the purchase price step up adjustments.

Note 14. Supplemental Information

The components of “Other operating expense, net” for the three month and six month periods ended June 30, 2020 and 2019 were as follows.

 
For the Three Month
Period Ended
June 30,
   
For the Six Month
Period Ended
June 30,
 
   
2020
   
2019
   
2020
   
2019
 
Other Operating Expense, Net
                       
Foreign currency transaction losses, net
 
$
5.2
   
$
0.6
   
$
7.8
   
$
3.7
 
Restructuring charges, net (1)
   
30.6
     
0.8
     
72.2
     
2.8
 
Shareholder litigation settlement recoveries (2)
   
—
     
—
     
—
     
(6.0
)
Acquisition related expenses and non-cash charges (3)
   
13.0
     
17.1
     
68.0
     
18.7
 
Other, net
   
1.1
     
(0.3
)
   
2.6
     
0.8
 
Total other operating expense, net
 
$
49.9
   
$
18.2
   
$
150.6
   
$
20.0
 

(1)
See Note 3 “Restructuring.”

(2)
Represents an insurance recovery of the Company’s shareholder litigation settlement in 2014.

(3)
Represents costs associated with successful and/or abandoned acquisitions, including third-party expenses, post-closure integration costs (including certain incentive and non-incentive cash compensation costs), and non-cash charges and credits arising from fair value purchase accounting adjustments.

Note 15. Contingencies

The Company is a party to various legal proceedings, lawsuits and administrative actions, which are of an ordinary or routine nature for a company of its size and sector. The Company believes that such proceedings, lawsuits and administrative actions will not materially adversely affect its operations, financial condition, liquidity or competitive position. For further description of the Company’s contingencies, reference is made to Note 20, “Contingencies” in the notes to consolidated financial statements in the Company’s 2019 Form 10-K.
35


The Company is still assessing any possible exposure to various legal proceedings, lawsuits and administrative actions, including future asbestos and silica-related lawsuits and environmental matters, assumed in the acquisition of Ingersoll Rand Industrial.

Asbestos and Silica Related Litigation

The Company believes that the pending and future asbestos and silica-related lawsuits are not likely to, in the aggregate, have a material adverse effect on its consolidated financial position, results of operations or liquidity. “Accrued liabilities” and “Other liabilities” of the Condensed Consolidated Balance Sheets include a total litigation reserve of $115.2 million and $118.1 million as of June 30, 2020 and December 31, 2019, respectively, with regards to potential liability arising from the Company’s asbestos-related litigation. Asbestos related defense costs are excluded from the asbestos claims liability and are recorded separately as services are incurred. In the event of unexpected future developments, it is possible that the ultimate resolution of these matters may be material to the Company’s consolidated financial position, results of operation or liquidity.

The Company has entered into a series of agreements with certain of its or its predecessors’ legacy insurers and certain potential indemnitors to secure insurance coverage and/or reimbursement for the costs associated with the asbestos and silica-related lawsuits filed against the Company. The Company has an insurance recovery receivable for probable asbestos related recoveries of approximately $122.4 million as of June 30, 2020 and December 31, 2019, respectively, which was included in “Other assets” in the Condensed Consolidated Balance Sheets. The amounts recorded by the Company for asbestos-related liabilities and insurance recoveries are based on currently available information and assumptions that the Company believes are reasonable based on an evaluation of relevant factors. The actual liabilities or insurance recoveries could be higher or lower than those recorded if actual results vary significantly from the assumptions.

Environmental Matters

The Company has been identified as a potentially responsible party (“PRP”) with respect to several sites designated for cleanup under U.S. federal “Superfund” or similar state laws that impose liability for cleanup of certain waste sites and for related natural resource damages. The Company has undiscounted accrued liabilities of $9.2 million and $6.6 million as of June 30, 2020 and December 31, 2019, respectively, on its Condensed Consolidated Balance Sheets to the extent costs are known or can be reasonably estimated for its remaining financial obligations in relation to environmental matters and does not anticipate that any of these matters will result in material additional costs beyond amounts accrued. Based upon consideration of currently available information, the Company does not anticipate any material adverse effect on its results of operations, financial condition, liquidity or competitive position as a result of compliance with federal, state, local or foreign environmental laws or regulations, or cleanup costs relating to these matters.

Note 16. Segment Results

Effective immediately upon the closing of the Ingersoll Rand Industrial acquisition, the Company operated with four reportable segments.  As a result of these changes, information that the Company’s chief operating decision maker regularly reviews for purposes of allocating resources and assessing performance changed.  Therefore, for periods subsequent to February 29, 2020, the Company reports its financial performance based on its new segments.  The Company recasted certain prior period amounts to conform to the revised segment reporting structure.  A description of the Company’s four reportable segments, including the specific products manufactured and sold is presented below.

In the Industrial Technologies and Services segment, the Company designs, manufactures, markets and services a broad range of compression and vacuum equipment as well as fluid transfer equipment, loading systems, power tools and lifting equipment. The Company’s compression and vacuum products are used worldwide in industrial manufacturing, transportation, chemical processing, food and beverage production, energy, environmental and other applications.  In addition to equipment sales, the Company offers a broad portfolio of service options tailored to customer needs and complete range of aftermarket parts, air treatment equipment, controls and other accessories.  The Company’s engineered loading systems and fluid transfer equipment ensure the safe handling and transfer of crude oil, liquefied natural gas, compressed natural gas, chemicals, and bulk materials. The Company’s power tools and lifting equipment are used by customers in industrial manufacturing, vehicle maintenance, energy and other markets for precision fastening, bolt removal, grinding, sanding, drilling, demolition and the safe and efficient lifting, positioning and movement of loads.  The Company sells its products primarily through independent distributors worldwide and also sells directly to the customer.

In the Precision and Science Technologies segment, the Company designs, manufactures and markets a broad range of specialized positive displacement pumps, fluid management equipment and aftermarket parts for medical, laboratory, industrial manufacturing, water and wastewater, chemical processing, energy, food and beverage, agriculture and other markets.  The Company’s products are used for a diverse set of applications including precision dosing of chemicals and supplements, blood dialysis, oxygen therapy, food processing, fluid transfer and dispensing, spray finishing and coating, mixing, high-pressure air and gas management and others.  The Company sells primarily through a broad global network of specialized and national distributors and original equipment manufacturers (“OEM”) who integrate the Company’s products into their devices and systems.

In the High Pressure Solutions segment, the Company designs, manufactures, markets and services a diverse range of positive displacement pumps, integrated systems and associated aftermarket parts, consumables and services.  The Company’s positive displacement pump offering includes mission-critical oil and gas drilling pumps, frac pumps and well servicing pumps, in addition to sales of associated consumables used in the operation of our pumps and aftermarket parts, consumables and services.  The products we sell into upstream energy applications are highly aftermarket-intensive and so we support these products in the field with one of the industry’s most comprehensive service networks.  The Company’s customers provide drilling, completions and well services to oil and gas operators, particularly in the major basins and plays in the North American land market.  The Company is one of the leading suppliers in these upstream energy applications and has long-standing customer relationships.

In the Specialty Vehicle Technologies segment, the Company designs, manufactures and markets Club Car ® golf, utility and consumer low-speed vehicles. The Company has a long-standing track record as a leading premium manufacturer with strong brand recognition.  Its customers include golf course operators, resorts and hospitality sites, government agencies and municipalities, manufacturing and construction firms, sports and other arenas, colleges and universities and other commercial establishments, as well as individual consumers.  The Company sells its products primarily through independent distributors in over eighty countries worldwide and also sells its products directly to consumers.
36


The Chief Operating Decision Maker (“CODM”) evaluates the performance of the Company’s reportable segments based on, among other measures, Segment Adjusted EBITDA. Management closely monitors the Segment Adjusted EBITDA of each reportable segment to evaluate past performance and actions required to improve profitability. Inter-segment sales and transfers are not significant. Administrative expenses related to the Company’s corporate offices and shared service centers in the United States and Europe, which includes transaction processing, accounting and other business support functions, are allocated to the business segments. Certain administrative expenses, including senior management compensation, treasury, internal audit, tax compliance, certain information technology, and other corporate functions, are not allocated to the business segments.

The following table provides summarized information about the Company’s operations by reportable segment and reconciles Segment Adjusted EBITDA to (Loss) Income Before Income Taxes for the three month periods ended June 30, 2020 and 2019.

   
For the Three Month
Period Ended
June 30,
   
For the Six Month
Period Ended
June 30,
 
 
2020
   
2019 (1)
   
2020
   
2019 (1)
 
Revenue
                       
Industrial Technologies and Services
 
$
829.6
   
$
427.6
   
$
1,333.6
   
$
832.7
 
Precision and Science Technologies
   
195.8
     
82.0
     
308.6
     
161.3
 
High Pressure Solutions
   
21.5
     
119.5
     
117.8
     
255.4
 
Specialty Vehicle Technologies
   
217.5
     
—
     
304.3
     
—
 
Total Revenue
 
$
1,264.4
   
$
629.1
   
$
2,064.3
   
$
1,249.4
 
Segment Adjusted EBITDA
                               
Industrial Technologies and Services
 
$
183.8
   
$
96.7
   
$
278.6
   
$
182.2
 
Precision and Science Technologies
   
59.3
     
24.6
     
92.2
     
47.8
 
High Pressure Solutions
   
(15.2
)
   
32.1
     
8.3
     
73.9
 
Specialty Vehicle Technologies
   
41.0
     
—
     
55.1
     
—
 
Total Segment Adjusted EBITDA
 
$
268.9
   
$
153.4
   
$
434.2
   
$
303.9
 
Less items to reconcile Segment Adjusted EBITDA to (Loss)
                               
Income Before Income Taxes:
                               
Corporate expenses not allocated to segments
 
$
27.7
   
$
7.1
   
$
45.2
   
$
18.6
 
Interest expense
   
30.8
     
22.4
     
57.9
     
44.8
 
Depreciation and amortization expense (a)
   
143.0
     
44.4
     
214.1
     
89.9
 
Restructuring and related business transformation costs (b)
   
32.2
     
2.0
     
74.4
     
6.1
 
Acquisition related expenses and non-cash charges (c)
   
95.9
     
17.1
     
192.1
     
18.7
 
Stock-based compensation (d)
   
12.7
     
6.2
     
15.7
     
14.8
 
Foreign currency transaction losses, net
   
5.2
     
0.6
     
7.8
     
3.7
 
Loss on extinguishment of debt (e)
   
—
     
0.2
     
2.0
     
0.2
 
Shareholder litigation settlement recoveries (f)
   
—
     
—
     
—
     
(6.0
)
Other adjustments (g)
   
2.1
     
0.2
     
1.4
     
0.7
 
(Loss) Income Before Income Taxes
 
$
(80.7
)
 
$
53.2
   
$
(176.4
)
 
$
112.4
 

(1)
For the three month period ended March 31, 2020, as a result of the acquisition of Ingersoll Rand Industrial, the Company changed its measurement methodology of Segment Adjusted EBITDA.  Segment Adjusted EBITDA and the reconciliation to (Loss) Income Before Income Taxes was revised to conform to the methodology used for the three month period ended March 31, 2020.

a)
Depreciation and amortization expense excludes $1.5 million and $2.7 million of depreciation of rental equipment for the three and six month periods ended June 30, 2020.
37


b)
Restructuring and related business transformation costs consist of the following.

 
For the Three Month
Period Ended
June 30,
   
For the Six Month
Period Ended
June 30,
 
 
 
2020
   
2019
   
2020
   
2019
 
Restructuring charges
 
$
30.6
   
$
0.8
   
$
72.2
   
$
2.8
 
Facility reorganization, relocation and other costs
   
0.1
     
0.5
     
0.5
     
1.1
 
Other, net
   
1.5
     
0.7
     
1.7
     
2.2
 
Total restructuring and related business transformation costs
 
$
32.2
   
$
2.0
   
$
74.4
   
$
6.1
 

c)
Represents costs associated with successful and/or abandoned acquisitions, including third-party expenses, post-closure integration costs (including certain incentive and non-incentive cash compensation costs) and non-cash charges and credits arising from fair value purchase accounting adjustments.

d)
Represents stock-based compensation expense recognized for the three month and six month periods ended June 30, 2020 of $12.7 million and $16.2 million, respectively, decreased by $0.5 million for the six month period ended June 30, 2020 due to costs associated with employer taxes.

 

Represents stock-based compensation expense recognized for the three month and six month periods ended June 30, 2019 of $6.0 million and $13.6 million, respectively, increased by $0.2 million and $1.2 million for the three month and six month periods ended June 30, 2019, respectively, due to costs associated with employer taxes.

e)
Represents losses on extinguishment of a portion of the U.S. term loan and the amendment of the revolving credit facility.

f)
Represents an insurance recovery of the Company’ shareholder litigation settlement in 2014.

g)
Includes (i) effects of amortization of prior service costs and amortization of losses in pension and other postemployment (“OPEB”) expense, (ii) certain legal and compliance costs and (iii) other miscellaneous adjustments.

Note 17. Related Party Transactions

Affiliates of KKR participated as a lender in the Company’s Senior Secured Credit Facilities. As of June 30, 2020, KKR held a position in the Euro Term Loan of €44.9 million and a position in the Dollar Term Loan B of $39.9 million.

The Company incurred and paid underwriting fees of $0.8 million and $7.5 million in the three and six month periods ended June 30, 2020, respectively, to KKR Capital Markets LLC, an affiliate of KKR, for services rendered in connection with the term loan transactions discussed in Note 8.

Note 18. (Loss) Earnings Per Share

The computations of basic and diluted earnings per share are as follows.

 
For the
Three Month
Period Ended
June 30,
   
For the
Six Month
Period Ended
June 30,
 
   
2020
   
2019
   
2020
   
2019
 
Net (loss) income attributable to Ingersoll Rand Inc.
 
$
(177.6
)
 
$
44.9
   
$
(214.4
)
 
$
92.1
 
Average shares outstanding
                               
Basic
   
417.0
     
203.4
     
347.2
     
202.5
 
Diluted
   
417.0
     
208.9
     
347.2
     
208.4
 
Earnings per share
                               
Basic
 
$
(0.43
)
 
$
0.22
   
$
(0.62
)
 
$
0.45
 
Diluted
 
$
(0.43
)
 
$
0.21
   
$
(0.62
)
 
$
0.44
 

The DSUs described in Note 16, “Stock-Based Compensation Plans” to the consolidated financial statements in the Company’s annual report on Form 10-K for the fiscal year ended December 31, 2019 were considered outstanding shares for the purpose of computing basic earnings per share because they were issued solely upon the passage of time.

For the three month periods ended June 30, 2020 and 2019, there were 3.8 million and 1.8 million anti-dilutive shares that were not included in the computation of diluted earnings per share.  For the six month periods ended June 30, 2020 and 2019, there were 3.9 million and 1.8 million anti-dilutive shares that were not included in the computation of diluted earnings per share.


Note 19. Subsequent Events

As discussed further in Note 1 “Basis of Presentation and Related Accounting Pronouncements”, the Company initiated a tender offer on June 22, 2020 to purchase shares of its subsidiary, IR India Limited, from noncontrolling shareholders pursuant to regulatory requirements of the Securities Exchange Board of India. The tender period ended on July 3, 2020. Approximately 6% of outstanding shares were tendered for an aggregate offer price of $14.9 million. Settlement of accepted tender offers occurred on July 17, 2020. As a result, the Company’s ownership interest in IR India Limited increased from approximately 74% as of June 30, 2020 to approximately 80%. The Company is required by SEBI regulations to take necessary steps to decrease the non-public shareholding of IR India Limited below 75% within twelve months of the date the non-public shareholding exceeded 75%.

38


ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion contains management’s discussion and analysis of our financial condition and results of operations and should be read together with the unaudited condensed consolidated financial statements and the related notes thereto included elsewhere in this Quarterly Report on Form 10-Q.  This discussion contains forward-looking statements that reflect our plans, estimates and beliefs and involve numerous risks and uncertainties, including, but not limited to, those described in the “Risk Factors” section of our Annual Report on Form 10-K for the fiscal year ended December 31, 2019, and our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2020.  Actual results may differ materially from those contained in any forward-looking statements.  You should carefully read “Special Note Regarding Forward-Looking Statements” in this Quarterly Report on Form 10-Q.

Overview

Our Company

We are a leading global provider of mission-critical flow creation technologies and associated aftermarket parts, consumables and services, which we sell across multiple attractive end-markets. We manufacture one of the broadest and most complete ranges of compressor, pump, vacuum and blower products in our markets, which, when combined with our global geographic footprint and application expertise, allows us to provide differentiated product and service offerings to our customers. Our products are sold under a collection of premier, market-leading brands, including Ingersoll Rand, Gardner Denver, Club Car. CompAir, Nash, Elmo Rietschle, Robuschi, Thomas, Milton Roy, ARO, Emco Wheaton and Runtech Systems, which we believe are globally recognized in their respective end-markets and known for product quality, reliability, efficiency and superior customer service.

Our Segments

Subsequent to the acquisition of Ingersoll Rand Industrial, we reorganized our reportable segments.  As a result, we no longer report under the three reportable segments of Industrial, Energy and Medical.  Instead, we report utilizing the four reportable segments of Industrial Technologies and Services, Precision and Science Technologies, High Pressure Solutions and Specialty Vehicle Technologies.  Our Chief Operating Decision Maker regularly reviews financial information to allocate resources and assess performance utilizing these reorganized segments.  See Note 5 “Goodwill and Other Intangible Assets” for the allocation of goodwill to the new reportable segments.  See Note 16 “Segment Results” for a description of the new reportable segments.

Industrial Technologies and Services

We design, manufacture, market and service a broad range of air and gas compression, vacuum and blower products, fluid transfer equipment, loading systems, power tools and lifting equipment, including associated aftermarket parts, consumables and services. We primarily sell under the Ingersoll Rand, Gardner Denver, CompAir, Elmo Rietschle, Robuschi, Nash and Emco Wheaton brands.  Our customers deploy our products across a wide array of technologies and applications for use in diverse end-markets. Compressors are used to increase the pressure of air or gas, vacuum products are used to remove air or gas in order to reduce the pressure below atmospheric levels, and blower products are used to produce a high volume of air or gas at low pressure. Almost every manufacturing and industrial facility, and many service and process industry applications, use air compression, vacuum and blower products in a variety of process-critical applications such as the operation of pneumatic tools, pumps and motion control components, air and gas separation, vacuum packaging of food products and aeration of waste water, among others. Our liquid ring vacuum pumps and compressors are used in many power generation, mining, oil and gas refining and processing, chemical processing and general industrial applications including flare gas and vapor recovery, geothermal gas removal, vacuum de-aeration, water extraction in mining and paper and chlorine compression in petrochemical operations. Our engineered loading systems and fluid transfer equipment ensure the safe handling and transfer of crude oil, liquefied natural gas, compressed natural gas, chemicals, and bulk materials. Our power tools and lifting equipment portfolio includes electric and cordless fastening systems, pneumatic bolting tools, drilling and material removal tools, hoists, winches and ergonomic handling devices.  Typical applications for these products include the precision fastening of bolted joints in the production, assembly and servicing of industrial machinery, on-highway and off-highway vehicles, aircraft, electronics and other equipment.

39

Our compression products cover the full range of technologies, including rotary screw, reciprocating piston, scroll, rotary vane and centrifugal compressors. Our vacuum products and blowers also cover the full technology spectrum; vacuum technologies include side channel, liquid ring, claw vacuum, screw, turbo and rotary vane vacuum pumps among others, while blower technologies include rotary lobe blowers, screw, claw and vane, side channel and radial blowers. Our liquid ring vacuum pumps and compressors are highly engineered products specifically designed for continuous duty in harsh environments to serve a wide range of applications, including oil and gas refining and processing, mining, chemical processing and industrial applications. In addition to our vacuum and blower technology, our engineered fluid loading and transfer equipment and systems ensure the safe and efficient transportation and transfer of petroleum products as well as certain other liquid commodity products in a wide range of industries.

We complement these products with a broad portfolio of service options tailored to customer needs and a complete range of aftermarket parts, air treatment equipment, controls and other accessories delivered through our global network of manufacturing and service locations and distributor partners.  The breadth and depth of our product offering creates incremental business opportunities by allowing us to cross-sell our full product portfolio and uniquely address customers’ needs in one complete solution.

We sell our products through an integrated network of direct sales representatives and independent distributors, which is strategically tailored to meet the dynamics of each target geography or end-market. Our large installed base also provides for a significant stream of recurring aftermarket revenue. For example, the useful life of a compressor is, on average, between 10 and 12 years. However, a customer typically services the compressor at regular intervals, starting within the first two years of purchase and continuing throughout the life of the product. The cumulative aftermarket revenue generated by a compressor over the product’s life cycle will typically exceed its original sale price.

Precision and Science Technologies

We design, manufacture and market a broad range of highly-specialized positive displacement pumps, fluid management systems and aftermarket parts that provide liquid and gas dosing, transfer, dispensing, compression, sampling, pressure management and flow control in specialized or critical applications.  Our product offering covers a range of pump and flow control technologies, including mechanically- and hydraulically-actuated diaphragm pumps, air-operated diaphragm and piston pumps, water-powered pumps, peristaltic pumps, gear pumps, flexible impeller pumps, self-priming centrifugal pumps, syringe pumps, motion control components, filtration/regulation/lubrication components, gas boosters, high pressure valves, hydrogen compression systems, liquid and gas sampling systems, odorant injection systems and more.  These offerings are sold under brands that are highly recognized in their end markets including ARO, Dosatron, Haskel, Milton Roy, Oberdorfer, Thomas and Welch.  Our customer base is composed of a wide range of end users in markets including medical, laboratory, industrial manufacturing, water and waste water, chemical processing, energy, food and beverage, agriculture and others.  Our sales are realized primarily through a combination of independent specialty and national distributors and relationships directly with original equipment manufacturers (“OEM”).

High Pressure Solutions

We design, manufacture, market and service a diverse range of positive displacement pumps, integrated systems and associated aftermarket parts, consumables and services. The highly engineered products offered by our High Pressure Solutions segment serve customers in the upstream energy market, as well as petrochemical processing, transportation and general industrial sectors. We are one of the largest suppliers of equipment and associated aftermarket parts, consumables and services for the upstream energy applications that we serve.

Our positive displacement pumps are fit-for-purpose to meet the demands and challenges of modern unconventional drilling and hydraulic fracturing activity.  Our offering includes mission-critical oil and gas drilling pumps, frac pumps and well servicing pumps, in addition to sales of associated consumables used in the operation of our pumps. The products we sell into upstream energy applications are highly aftermarket-intensive, and so we support these products in the field with one of the industry’s most comprehensive service networks, which encompasses locations across all major basins and shale plays in the North American land market. This service network is critical to serving our customers and, by supporting them in the field, to generating demand for new original equipment sales and aftermarket parts, consumables, service and repair sales which in aggregate are often multiples of the value of the original equipment.

The Company’s customers provide drilling, completions and well services to oil and gas operators, particularly in the major basins and plays in the North American land market.  The Company is one of the leading suppliers in these upstream energy applications and has long-standing customer relationships.

Specialty Vehicle Technologies

We design, manufacture and market golf car and other low speed vehicles for commercial utility and personal transportation under the Club Car ® brand.  Product offerings include new and used electric, gas and diesel-powered vehicles, accessories and aftermarket parts.  Service offerings include repair and maintenance, short-term rentals and digital connectivity services that enable fleet management, entertainment and provide enhanced end-user experience.

40

Sales of golf car fleets and turf utility vehicles are primarily derived from golf courses owners and operators around the world.  Utility, all-wheel drive, and multi passenger transport vehicles are used in commercial and maintenance applications at resorts and hospitality sites, government agencies and municipalities, manufacturing and construction firms, sports and other areas, colleges and universities and other commercial establishments.  Our consumer vehicles are generally sold to individuals and families for personal transportation in residential communities, camp grounds and vacation locations.  All of our low speed vehicles are highly featured, and highly customized for their application and are available in multiple colors, fabrics, power trains and accessories.  The majority of sales are derived through a global network of independent distributors and dealers.  We also sell our products directly to certain customers within the golf industry, through company-owned sales resources.

Components of Our Revenue and Expenses

Revenues

We generate revenue from sales of original equipment and associated aftermarket parts, consumables and services. We sell our products and deliver services both directly to end-users and through independent distribution channels, depending on the product line and geography.  Revenue derived from short duration contracts is recognized at a single point in time when control is transferred to the customer, generally at shipment or when delivery has occurred or as services are performed. Certain contracts involve significant design engineering to customer specifications, and depending upon the contractual terms, revenue is recognized either over the duration of the contract or at contract completion when equipment is delivered to the customer.

Expenses

Cost of Sales

Cost of sales includes the costs we incur, including purchased materials, labor and overhead related to manufactured products and aftermarket parts sold during a period. Depreciation related to manufacturing equipment and facilities is included in cost of sales. Purchased materials represent the majority of costs of sales, with steel, aluminum, copper and partially finished castings representing our most significant materials inputs. Stock-based compensation expense for employees associated with the manufacture of products or delivery of services to customers is included in cost of sales. We have instituted a global sourcing strategy to take advantage of coordinated purchasing opportunities of key materials across our manufacturing plant locations.

Cost of sales for services includes the direct costs we incur, including direct labor, parts and other overhead costs including depreciation of equipment and facilities, to deliver repair, maintenance and other field services to our customers.

Selling and Administrative Expenses

Selling and administrative expenses consist of (i) salaries and other employee-related expenses for our selling and administrative functions and other activities not associated with the manufacture of products or delivery of services to customers; (ii) facility operating expenses for selling and administrative activities, including office rent, maintenance, depreciation and insurance; (iii) marketing and direct costs of selling products and services to customers including internal and external sales commissions; (iv) research and development expenditures; (v) professional and consultant fees; (vi) expenses related to our  public stock offerings and to establish public company reporting compliance; (vii) employee related stock-based compensation for our selling and administrative functions and other activities not associated with the manufacture of products or delivery of services to customers; and (viii) other miscellaneous expenses. Certain corporate expenses, including those related to our shared service centers in the United States and Europe, that directly benefit our businesses are allocated to our business segments. Certain corporate administrative expenses, including corporate executive compensation, treasury, certain information technology, internal audit and tax compliance, are not allocated to the business segments.

Amortization of Intangible Assets

Amortization of intangible assets includes the periodic amortization of intangible assets including customer relationships, trademarks, developed technology, backlog and internally developed software.

41

Other Operating Expense, Net

Other operating expense, net includes foreign currency transaction gains and losses, net, restructuring charges, certain shareholder litigation settlement recoveries, acquisition related expenses and non-cash charges, losses and gains on asset disposals and other miscellaneous operating expenses.

Provision for Income Taxes

The provision for income taxes includes U.S. federal, state and local income taxes and all non-U.S. income taxes. We are subject to income tax in approximately 48 jurisdictions outside of the United States.  Because we conduct operations on a global basis, our effective tax rate depends, and will continue to depend, on the geographic distribution of our pre-tax earnings among several different taxing jurisdictions. Our effective tax rate can also vary based on changes in the tax rates of the different jurisdictions, the availability of tax credits and non-deductible items.

Items Affecting our Reported Results

General Economic Conditions and Capital Spending in the Industries We Serve

Our financial results closely follow changes in the industries and end-markets we serve. Demand for most of our products depends on the level of new capital investment and planned and unplanned maintenance expenditures by our customers. The level of capital expenditures depends, in turn, on the general economic conditions as well as access to capital at reasonable cost. In particular, demand for our Industrial Technologies and Services products generally correlates with the rate of total industrial capacity utilization and the rate of change of industrial production. Capacity utilization rates above 80% have historically indicated a strong demand environment for industrial equipment. In the midstream and downstream portions of our Industrial Technologies and Services segment, overall economic growth and industrial production, as well as secular trends, impact demand for our products.  In our High Pressure Solutions segment, demand for our products that serve upstream energy end-markets are influenced heavily by energy prices and the expectation as to future trends in those prices. Energy prices have historically been cyclical in nature and are affected by a wide range of factors. In addition to energy prices, demand for our upstream energy products are positively impacted by increasing global land rig count, drilled but uncompleted wells, the level of hydraulic fracturing intensity and activity measured by horsepower utilization and lateral lengths as well as drilling and completion capital expenditures. In our Precision and Science Technologies segment we expect demand for our products to be driven by favorable trends, including the growth in healthcare spend and expansion of healthcare systems due to an aging population requiring medical care and increased investment in health solutions and safety infrastructures in emerging economies. Over longer time periods, we believe that demand for all of our products also tends to follow economic growth patterns indicated by the rates of change in the GDP around the world, as augmented by secular trends in each segment. Our ability to grow and our financial performance will also be affected by our ability to address a variety of challenges and opportunities that are a consequence of our global operations, including efficiently utilizing our global sales, manufacturing and distribution capabilities and engineering innovative new product applications for end-users in a variety of geographic markets.

Foreign Currency Fluctuations

A significant portion of our revenues, approximately 48% for the six month period ended June 30, 2020, was denominated in currencies other than the U.S. dollar.  Because much of our manufacturing facilities and labor force costs are outside of the United States, a significant portion of our costs are also denominated in currencies other than the U.S. dollar. Changes in foreign exchange rates can therefore impact our results of operations and are quantified when significant to our discussion.

Factors Affecting the Comparability of our Results of Operations

As a result of a number of factors, our historical results of operations are not comparable from period to period and may not be comparable to our financial results of operations in future periods. Key factors affecting the comparability of our results of operations are summarized below.

Acquisition of Ingersoll Rand Industrial

On February 29, 2020, we completed the acquisition of Ingersoll Rand Industrial.  We reorganized our reportable segments as a result of the Ingersoll Rand Industrial acquisition and formed four new reportable segments.

•
Industrial Technologies and Services segment – Ingersoll Rand Industrial’s Compression Technologies and Services (“CTS”) and Power Tools and Lift (“PTL”) businesses joined the legacy Gardner Denver Industrial segment (excluding the Specialty Pump businesses) and the midstream and downstream portions of the Gardner Denver Energy segment to form the new “Industrial Technologies and Services” segment.

42



•
Precision and Science Technologies segment – Ingersoll Rand Industrial’s Precision Flow Systems (“PFS”) and ARO businesses joined the legacy Gardner Denver Medical segment and Specialty Pump businesses from the legacy Gardner Denver Industrial segment to form the new “Precision and Science Technologies” segment.

•
High Pressure Solutions segment – The upstream energy portion of the legacy Gardner Denver Energy segment was disaggregated to form the new “High Pressure Solutions” segment.

•
Specialty Vehicle Technologies segment – Ingersoll Rand Industrial’s Club Car golf, utility and consumer low-speed vehicles business formed the new “Specialty Vehicle Technologies” segment.

Ingersoll Rand Industrial is included in our results of operations beginning on the acquisition date (close of business February 29, 2020). Comparability between the three and six month periods ended June 30, 2020 and 2019 will be affected by three months and four months of activity from Ingersoll Rand Industrial, respectively.  Subsequent to the date of acquisition, in the six month period ended June 30, 2020, the Ingersoll Rand Industrial acquisition contributed $659.2 million, $156.4 million, and $304.2 million of revenue to the Industrial Technologies and Services, Precision and Science Technologies and Specialty Vehicle Technologies segments, respectively.

See Note 2 “Business Combinations” to our unaudited condensed consolidated financial statements included elsewhere in this Form 10-Q for further discussion of the acquisition of Ingersoll Rand Industrial.

Impact of Coronavirus (COVID-19)

We continue to assess and actively manage the impact of the COVID-19 pandemic on our global operations and also the operations of our suppliers and customers.  Overall demand for our products has decreased as a result of the pandemic, which impacted our operating results for the three and six month periods ended June 30, 2020.  We are adhering to all state and country mandates and guidelines wherever we operate. Currently all our major manufacturing locations in the United States, United Kingdom, Germany, Italy, Brazil and China are operational. In some countries, such as India and South Africa, our facilities have opened up throughout the three month period ended June 30, 2020, in accordance with country mandates and guidelines. We are taking certain actions to reduce costs and preserve cash given the rapidly changing environment. The length of time the pandemic will impact our operations, and the operations of our customers and suppliers remains uncertain.  See “The COVID-19 pandemic has adversely affected our business and results of operations, and could have a material and adverse effect on our business, results of operations and financial condition in the future” in Part II Item 1A. “Risk Factors” in our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2020.

Conditions in oil and gas markets

During the six month period ended June 30, 2020, oil prices dropped significantly due to declines in demand resulting from the COVID-19 pandemic and risks of significant production increases from Saudi Arabia and Russia. We sell into upstream energy markets, primarily in our High Pressure Solutions segment, that are influenced heavily by oil and natural gas prices and the expectation of the future prices of those commodities. As a result of decreases in oil prices, we experienced a reduction in demand and consequently pricing within our High Pressure Solutions segment.

We believe it is helpful to consider the impact of our exposure to the upstream energy market in evaluating our 2019 and 2020 Segment Revenue and Segment Adjusted EBITDA for our High Pressure Solutions segment, in order to better understand other drivers of our performance during those periods, including operational improvements.

Restructuring and Other Business Transformation Initiatives

Subsequent to the acquisition of Ingersoll Rand Industrial, we announced a restructuring program (“2020 Plan”) to drive efficiencies and synergies, reduce the number of facilities and optimize operating margins within our merged Company.  We expect total expenses of approximately $350.0 million related to workforce reductions, lease termination costs, other facility rationalization costs and other business related transformation costs from 2020 until 2022.  We expect to realize approximately $250.0 million in annualized cost synergies by the end of 2022.  We continue to evaluate operating efficiencies and anticipate incurring additional costs in the coming years in connection with these activities, but we are unable to estimate those amounts at this time as such plans are not yet finalized.

Through June 30, 2020, $72.2 million was charged to expense through “Other operating expense, net” in the Condensed Consolidated Statements of Operations ($57.6 million for Industrial Technologies and Services, $4.9 million for Precision and Science Technologies, $4.1 million for High Pressure Solutions, $0.7 million for Specialty Vehicle Technologies and $4.9 million for Corporate).

43

Outlook

Industrial Technologies and Services Segment

The mission-critical nature of our products across manufacturing processes drives a demand environment and outlook that are correlated with global and regional industrial production, capacity utilization and long-term GDP growth. Due to the uncertainty of current economic conditions associated with COVID-19, and its impact on end markets, our near-term visibility is limited.  In the second quarter of 2020, we had $787.9 million of orders in our Industrial Technologies and Services segment, an increase of 85.7% over the second quarter of 2019. Approximately $475.0 million of these orders relate to the acquisition of Ingersoll Rand Industrial.

Precision and Science Technologies Segment

During the COVID-19 pandemic, the Precision and Science Technologies segment has seen increased demand for our vacuum pump and compressor solutions used in respirator and ventilator applications.  Demand of other products and services have been curtailed as a result of the COVID-19 pandemic and near-term visibility is limited.  In the second quarter of 2020, we had $201.3 million of orders in our Precision and Science Technologies segment, an increase of 137.7% over 2019.  Approximately $113.4 million of these orders relate to the acquisition of Ingersoll Rand Industrial.

High Pressure Solutions Segment

The demand and outlook for the majority of our High Pressure Solutions products and services are influenced heavily by the supply and demand dynamics related to oil and natural gas products, and have been influenced by oil and natural gas prices, the level and intensity of hydraulic fracturing activity, global land rig count, the number of drilled but uncompleted wells and other economic factors. The COVID-19 pandemic and related economic repercussions have negatively impacted the global demand for oil and natural gas. These conditions were compounded by the risks of significant production increases from Saudi Arabia and Russia in the first half of 2020, resulting in downward pressure on commodity prices.  While the ultimate duration of these conditions is unknown, we expect reduced demand for our products to persist through 2020.  In the second quarter of 2020, we had $12.8 million of orders in our High Pressure Solutions segment, a decrease of 86.9% over the second quarter of 2019.

Specialty Vehicle Technologies Segment

During 2020, the Specialty Vehicle Technologies segment is seeing consistent demand in golf end markets along with record demand for consumer vehicle and aftermarket parts offerings.  This has helped to offset demand pressure in the commercial end markets as the COVID-19 pandemic continues to impact the hospitality and resort industries.  In the second quarter of 2020, we had $208.2 million of orders in our Specialty Vehicle Technologies segment and are entering the second half with a solid backlog position.

How We Assess the Performance of Our Business

We manage operations through the four business segments described above. In addition to our consolidated GAAP financial measures, we review various non-GAAP financial measures, including Adjusted EBITDA, Adjusted Net Income and Free Cash Flow.

We believe Adjusted EBITDA and Adjusted Net Income are helpful supplemental measures to assist us and investors in evaluating our operating results as they exclude certain items whose fluctuation from period to period do not necessarily correspond to changes in the operations of our business. Adjusted EBITDA represents net income (loss) before interest, taxes, depreciation, amortization and certain non-cash, non-recurring and other adjustment items. We believe that the adjustments applied in presenting Adjusted EBITDA are appropriate to provide additional information to investors about certain material non-cash items and about non-recurring items that we do not expect to continue at the same level in the future. Adjusted Net Income is defined as net (loss) income including interest, depreciation and amortization of non-acquisition related intangible assets and excluding other items used to calculate Adjusted EBITDA and further adjusted for the tax effect of these exclusions.

We use Free Cash Flow to review the liquidity of our operations. We measure Free Cash Flow as cash flows from operating activities less capital expenditures. We believe Free Cash Flow is a useful supplemental financial measure for us and investors in assessing our ability to pursue business opportunities and investments and to service our debt. Free Cash Flow is not a measure of our liquidity under GAAP and should not be considered as an alternative to cash flows from operating activities.

44

Management and our board of directors regularly use these measures as tools in evaluating our operating and financial performance and in establishing discretionary annual compensation. Such measures are provided in addition to, and should not be considered to be a substitute for, or superior to, the comparable measures under GAAP. In addition, we believe that Adjusted EBITDA, Adjusted Net Income and Free Cash Flow are frequently used by investors and other interested parties in the evaluation of issuers, many of which also present Adjusted EBITDA, Adjusted Net Income and Free Cash Flow when reporting their results in an effort to facilitate an understanding of their operating and financial results and liquidity.

Adjusted EBITDA, Adjusted Net Income and Free Cash Flow should not be considered as alternatives to net (loss) income or any other performance measure derived in accordance with GAAP, or as alternatives to cash flow from operating activities as a measure of our liquidity. Adjusted EBITDA, Adjusted Net Income and Free Cash Flow have limitations as analytical tools, and you should not consider such measures either in isolation or as substitutes for analyzing our results as reported under GAAP.

See “Non-GAAP Financial Measures” below for reconciliation information.

Results of Operations

Consolidated results should be read in conjunction with the segment results section herein and Note 16 “Segment Results” to our unaudited condensed consolidated financial statements included elsewhere in this Form 10-Q, which provides more detailed discussions concerning certain components of our Condensed Consolidated Statements of Operations.  All intercompany accounts and transactions have been eliminated within the consolidated results.

45

The following table presents selected Consolidated Results of Operations of our business for the three and six month periods ended June 30, 2020 and 2019.

 
For the Three Month
   
For the Six Month
 
   
Period Ended
   
Period Ended
 
   
June 30,
   
June 30,
 
   
2020
   
2019
   
2020
   
2019
 
Condensed Consolidated Statement of Operations:
                       
Revenues
 
$
1,264.4
   
$
629.1
   
$
2,064.3
   
$
1,249.4
 
Cost of sales
   
904.4
     
394.7
     
1,459.8
     
784.5
 
Gross profit
   
360.0
     
234.4
     
604.5
     
464.9
 
Selling and administrative expenses
   
247.7
     
110.7
     
403.1
     
227.7
 
Amortization of intangible assets
   
114.6
     
30.9
     
169.8
     
62.3
 
Other operating expense, net
   
49.9
     
18.2
     
150.6
     
20.0
 
Operating (loss) income
   
(52.2
)
   
74.6
     
(119.0
)
   
154.9
 
Interest expense
   
30.8
     
22.4
     
57.9
     
44.8
 
Loss on extinguishment of debt
   
-
     
0.2
     
2.0
     
0.2
 
Other income, net
   
(2.3
)
   
(1.2
)
   
(2.5
)
   
(2.5
)
Income before income taxes
   
(80.7
)
   
53.2
     
(176.4
)
   
112.4
 
Provision for income taxes
   
95.8
     
8.3
     
37.0
     
20.3
 
Net (loss) income
   
(176.5
)
   
44.9
     
(213.4
)
   
92.1
 
Less: Net income attributable to noncontrolling interests
   
1.1
     
-
     
1.0
     
-
 
Net (Loss) Income Attributable to Ingersoll Rand Inc.
 
$
(177.6
)
 
$
44.9
   
$
(214.4
)
 
$
92.1
 
                                 
Percentage of Revenues:
                               
Gross profit
   
28.5
%
   
37.3
%
   
29.3
%
   
37.2
%
Selling and administrative expenses
   
19.6
%
   
17.6
%
   
19.5
%
   
18.2
%
Operating (loss) income
   
(4.1
%)
   
11.9
%
   
(5.8
%)
   
12.4
%
Net (loss) income
   
(14.0
%)
   
7.1
%
   
(10.3
%)
   
7.4
%
Adjusted EBITDA
   
19.1
%
   
23.3
%
   
18.8
%
   
22.8
%
                                 
Other Financial Data:
                               
Adjusted EBITDA (1)
 
$
241.2
   
$
146.3
   
$
389.0
   
$
285.3
 
Adjusted Net Income (1)
   
129.9
     
88.5
     
205.0
     
166.7
 
Cash flows - operating activities
   
247.4
     
61.4
     
315.8
     
130.1
 
Cash flows - investing activities
   
(15.8
)
   
(10.0
)
   
17.3
     
(24.5
)
Cash flows - financing activities
   
378.8
     
1.2
     
336.9
     
(16.1
)
Free Cash Flow (1)
   
230.3
     
50.8
     
290.4
     
105.4
 

(1)
See the “Non-GAAP Financial Measures” section for a reconciliation to comparable GAAP measure.

Revenues

Revenues for the three month period ended June 30, 2020 were $1,264.4 million, an increase of $635.3 million, or 101.0%, compared to $629.1 million for the same three month period in 2019.  The increase in revenues was primarily due to acquisitions, including Ingersoll Rand Industrial of $828.0 million, partially offset by lower volumes due to the effects of COVID-19 in our Industrial Technologies and Services segment of $89.8 million and our High Pressure Solutions segment of $96.6 million.  The percentage of consolidated revenues derived from aftermarket parts and services was 33.9% in the three month period ended June 30, 2020 compared to 37.4% in the same three month period in 2019.

Revenues for the six month period ended June 30, 2020 were $2,064.3 million, an increase of $814.9 million, or 65.2%, compared to $1,249.4 million for the same six month period in 2019.  The increase in revenues was primarily due to acquisitions, including Ingersoll Rand Industrial of $1,122.9 million partially offset by lower volumes due to the effects of COVID-19 in our Industrial Technologies and Services segment of $152.6 million and in our High Pressure Solutions segment of $126.1 million, as well as unfavorable impact of foreign currencies of $20.6 million.  The percentage of consolidated revenues derived from aftermarket parts and services was 35.9% in the six month period ended June 30, 2020 compared to 38.4% in the same six month period in 2019.

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Gross Profit

Gross profit for the three month period ended June 30, 2020 was $360.0 million, an increase of $125.6 million, or 53.6%, compared to $234.4 million for the same three month period in 2019, and as a percentage of revenues was 28.5% for the three month period ended June 30, 2020 and 37.3% for the same three month period in 2019.  The increase in gross profit is primarily due to acquisitions, including Ingersoll Rand Industrial, partially offset by the runoff of the fair valuation adjustments related to purchase price allocation from inventory into cost of sales, lower volumes due to the effects of COVID-19 in our Industrial Technologies and Services segment and our High Pressure Solutions segment, and unfavorable product mixes. The decrease in gross profit as a percentage of revenues is primarily due to the runoff of the fair valuation adjustments related to purchase price allocation from inventory into cost of sales and unfavorable product mixes.

Gross profit for the six month period ended June 30, 2020 was $604.5 million, an increase of $139.6 million, or 30.0%, compared to $464.9 million for the same six month period in 2019, and as a percentage of revenues was 29.3% for the six month period ended June 30, 2020 and 37.2% for the same six month period in 2019.  The increase in gross profit is primarily due to acquisitions, including Ingersoll Rand Industrial, partially offset by the runoff of the fair valuation adjustments related to purchase price allocation from inventory into cost of sales, lower volumes due to the effects of COVID-19 in our Industrial Technologies and Services segment and our High pressure segment, and unfavorable product mixes. The decrease in gross profit as a percentage of revenues is primarily due to the runoff of the fair valuation adjustments related to purchase price allocation from inventory into cost of sales and unfavorable product mixes.

Selling and Administrative Expenses

Selling and administrative expenses were $247.7 million for the three month period ended June 30, 2020, an increase of $137.0 million, or 123.8%, compared to $110.7 million for the same three month period in 2019.  Selling and administrative expenses as a percentage of revenues increased to 19.6% for the three month period ended June 30, 2020 from 17.6% in the same three month period in 2019.  The increase in selling and administrative expenses is primarily due to acquisitions, including Ingersoll Rand Industrial, partially offset by a decrease in advertising expenses and employee related expenses including salaries and wages, within our legacy business units.

Selling and administrative expenses were $403.1 million for the six month period ended June 30, 2020, an increase of $175.4 million, or 77.0%, compared to $227.7 million for the same six month period in 2019. Selling and administrative expenses as a percentage of revenues increased to 19.5% for the six month period ended June 30, 2020 from 18.2% in the same six month period in 2019.  The increase in selling and administrative expenses is primarily due to acquisitions, including Ingersoll Rand Industrial, partially offset by a decrease in advertising expenses and employee related expenses including salaries and wages, within our legacy business units.

Amortization of Intangible Assets

Amortization of intangible assets was $114.6 million for the three month period ended June 30, 2020, an increase of $83.7 million, compared to $30.9 million in the same three month period in 2019. The increase was primarily due to the amortization of intangible assets related to the acquisition of Ingersoll Rand Industrial.

Amortization of intangible assets was $169.8 million for the six month period ended June 30, 2020, an increase of $107.5 million, compared to $62.3 million in the same six month period in 2019.  The increase was primarily due to the amortization of intangible assets related to the acquisition of Ingersoll Rand Industrial.

Other Operating Expense, Net

Other operating expense, net was $49.9 million for the three month period ended June 30, 2020, an increase of $31.7 million, compared to $18.2 million in the same three month period in 2019.  The increase was primarily due to higher restructuring charges of $29.8 million and higher foreign currency transaction losses, net of $4.6 million partially offset by lower acquisition related expenses and non-cash charges of $4.1 million.

Other operating expense, net was $150.6 million for the six month period ended June 30, 2020, an increase of $130.6 million, compared to $20.0 million in the same six month period in 2019.  The increase was primarily due to higher restructuring charges of $69.4 million, higher acquisition related expenses and non-cash charges of $49.3 million, lower shareholder litigation recoveries of $6.0 million and higher foreign currency transaction losses, net of $4.1 million.

47

Interest Expense

Interest expense was $30.8 million for the three month period ended June 30, 2020, an increase of $8.4 million, compared to $22.4 million in the same three month period in 2019. The increase was primarily due to the addition of a $1,900 million term loan entered into in conjunction with the acquisition of Ingersoll Rand Industrial, partially offset by a decrease in the weighted-average interest rate. The weighted average interest rate was approximately 3.4% for the three month period ended June 30, 2020 and 5.5% in the same period in 2019.

Interest expense was $57.9 million for the six month period ended June 30, 2020, an increase of $13.1 million, compared to $44.8 million in the same six month period in 2019. The increase was primarily due to the addition of a $1,900 million term loan entered into in conjunction with the acquisition of Ingersoll Rand Industrial, partially offset by a decrease in the weighted-average interest rate.  The weighted average interest rate was approximately 4.2% for the six month period ended June 30, 2020 and 5.4% in the same period in 2019.

Loss on Extinguishment of Debt

Loss on extinguishment of debt was $2.0 million for the six month period ended June 30, 2020, which was related to the refinancing of the Original Dollar Term Loan and the Original Euro Term Loan.

Other Income, Net

Other income, net was $2.3 million and $1.2 million in the three months ended June 30, 2020 and 2019, respectively. The increase was primarily due to the increase in other components of net periodic benefit cost.

Other income, net was $2.5 million in each of the six month periods ended June 30, 2020 and 2019.

Provision for Income Taxes

The provision for income taxes was $95.8 million resulting in a (118.7%) effective income tax provision rate for the three month period ended June 30, 2020, compared to a provision for income taxes of $8.3 million resulting in a 15.6% effective income tax provision rate in the same three month period in 2019.  The increase in the tax provision for the three month period ended June 30, 2020 is primarily due to a reduction in the pre-tax book income in jurisdictions with lower effective tax rates combined with significant earnings in jurisdictions with higher tax rates. The reduction in pre-tax book income is mainly from the COVID-19 global pandemic, the transaction costs associated with the acquisition of Ingersoll Rand Industrial, and additional amortization and depreciation expense associated with the purchase price step up adjustments.

The provision for income taxes was $37.0 million resulting in a (21.0%) effective income tax provision rate for the six month period ended June 30, 2020, compared to a provision for income taxes of $20.3 million resulting in a 18.1% effective income tax provision rate in the same six month period in 2019.  The increase in the tax provision for the six month period ended June 30, 2020 is primarily due is primarily due to a reduction in the pre-tax book income in jurisdictions with lower effective tax rates combined with significant earnings in jurisdictions with higher tax rates. The reduction in pre-tax book income is mainly from the COVID-19 global pandemic, the transaction costs associated with the acquisition of Ingersoll Rand Industrial, and additional amortization and depreciation expense associated with the purchase price step up adjustments.

Net (Loss) Income

Net loss was $176.5 million for the three month period ended June 30, 2020 compared to net income of $44.9 million in the same three month period in 2019. The decrease in net income was primarily due to higher selling and administrative expenses, increased other operating expenses, net, higher amortization and a higher provision for income taxes, partially offset by higher gross profit on increased revenues.

Net loss was $213.4 million for the six month period ended June 30, 2020 compared to net income of $92.1 million in the same six month period in 2019. The decrease in net income was primarily due to higher selling and administrative expenses, increased other operating expenses, net, higher amortization and a higher provision for income taxes, partially offset by higher gross profit on increased revenues.

48

Adjusted EBITDA

Adjusted EBITDA increased $94.9 million to $241.2 million for the three month period ended June 30, 2020 compared to $146.3 million in the same three month period in 2019.  Adjusted EBITDA as a percentage of revenues decreased 420 basis points to 19.1% for the three month period ended June 30, 2020 from 23.3% for the same three month period in 2019.  The increase in Adjusted EBITDA was primarily due to acquisitions, including Ingersoll Rand Industrial of $176.2 million, partially offset by lower organic sales volume of $68.7 million.  The decrease in Adjusted EBITDA as a percentage of revenues is primarily attributable to unfavorable margin mix due to the acquisition and inclusion of Ingersoll Rand Industrial results in the three month period ended June 30, 2020.

Adjusted EBITDA increased $103.7 million to $389.0 million for the six month period ended June 30, 2020 compared to $285.3 million in the same six month period in 2019.  Adjusted EBITDA as a percentage of revenues decreased 400 basis points to 18.8% for the six month period ended June 30, 2020 from 22.8% for the same six month period in 2019.  The increase in Adjusted EBITDA was primarily due to acquisitions, including Ingersoll Rand Industrial of $226.9 million, partially offset by lower organic sales volume of $109.0 million.  The decrease in Adjusted EBITDA as a percentage of revenues is primarily attributable to unfavorable margin mix due to the acquisition and inclusion of Ingersoll Rand Industrial results in the six month period ended June 30, 2020.

Adjusted Net Income

Adjusted Net Income increased $41.4 million to $129.9 million for the three month period ended June 30, 2020 compared to $88.5 million in the same three month period in 2019.  The increase was primarily due to increased Adjusted EBITDA, partially offset by higher interest and depreciation expenses and an increased income tax provision, as adjusted.

Adjusted Net Income increased $38.3 million to $205.0 million for the six month period ended June 30, 2020 compared to $166.7 million in the same six month period in 2019.  The increase was primarily due to increased Adjusted EBITDA, partially offset by higher interest and depreciation expenses and an increased income tax provision, as adjusted.

49

Non-GAAP Financial Measures

Set forth below are the reconciliations of Net (Loss) Income to Adjusted EBITDA and Adjusted Net Income and Cash Flows from Operating Activities to Free Cash Flow.

   
For the Three Month
Period Ended
June 30,
   
For the Six Month
Period Ended
June 30,
 
   
2020
   
2019
   
2020
   
2019
 
Net (Loss) Income
 
$
(176.5
)
 
$
44.9
   
$
(213.4
)
 
$
92.1
 
Plus:
                               
Interest expense
   
30.8
     
22.4
     
57.9
     
44.8
 
Provision for income taxes
   
95.8
     
8.3
     
37.0
     
20.3
 
Depreciation expense (a)
   
28.4
     
13.5
     
44.3
     
27.6
 
Amortization expense (b)
   
114.6
     
30.9
     
169.8
     
62.3
 
Restructuring and related business transformation costs (c)
   
32.2
     
2.0
     
74.4
     
6.1
 
Acquisition related expenses and non-cash charges (d)
   
95.9
     
17.1
     
192.1
     
18.7
 
Stock-based compensation (e)
   
12.7
     
6.2
     
15.7
     
14.8
 
Foreign currency transaction losses, net
   
5.2
     
0.6
     
7.8
     
3.7
 
Loss on extinguishment of debt (f)
   
-
     
0.2
     
2.0
     
0.2
 
Shareholder litigation settlement recoveries (g)
   
-
     
-
     
-
     
(6.0
)
Other adjustments (h)
   
2.1
     
0.2
     
1.4
     
0.7
 
Adjusted EBITDA
 
$
241.2
   
$
146.3
   
$
389.0
   
$
285.3
 
Minus:
                               
Interest expense
 
$
30.8
   
$
22.4
   
$
57.9
   
$
44.8
 
Income tax provision, as adjusted (i)
   
46.9
     
19.2
     
73.2
     
40.5
 
Depreciation expense
   
28.4
     
13.5
     
44.3
     
27.6
 
Amortization of non-acquisition related intangible assets
   
5.2
     
2.7
     
8.6
     
5.7
 
Adjusted Net Income
 
$
129.9
   
$
88.5
   
$
205.0
   
$
166.7
 
Free Cash Flow
                               
Cash flows - operating activities
 
$
247.4
   
$
61.4
   
$
315.8
   
$
130.1
 
Minus:
                               
Capital expenditures
   
17.1
     
10.6
     
25.4
     
24.7
 
Free Cash Flow
 
$
230.3
   
$
50.8
   
$
290.4
   
$
105.4
 

a)
Depreciation and amortization expense excludes $1.5 million and $2.7 million of depreciation of rental equipment for the three and six month periods ended June 30, 2020.

b)
Represents $109.4 million and $28.2 million of amortization of intangible assets arising from the acquisition of Ingersoll Rand Industrial and other acquisitions (customer relationships, technology and trademarks) and $5.2 million and $2.7 million of amortization of non-acquisition related intangible assets, in each case for the three month periods ended June 30, 2020 and 2019, respectively.

Represents $161.2 million and $56.6 million of amortization of intangible assets arising from the acquisition of Ingersoll Rand Industrial and other acquisitions (customer relationships, technology and trademarks) and $8.6 million and $5.7 million of amortization of non-acquisition related intangible assets, in each case for the six month periods ended June 30, 2020 and 2019, respectively.

50

c)          Restructuring and related business transformation costs consisted of the following.

   
For the Three Month
Period Ended
June 30,
   
For the Six Month
Period Ended
June 30,
 
   
2020
   
2019
   
2020
   
2019
 
Restructuring charges
 
$
30.6
     
0.8
   
$
72.2
     
2.8
 
Facility reorganization, relocation and other costs
   
0.1
     
0.5
     
0.5
     
1.1
 
Other, net
   
1.5
     
0.7
     
1.7
     
2.2
 
Total restructuring and related business transformation costs
 
$
32.2
   
$
2.0
   
$
74.4
   
$
6.1
 

d)
Represents costs associated with successful and/or abandoned acquisitions, including third-party expenses, post-closure integration costs (including certain incentive and non-incentive cash compensation costs), and non-cash charges and credits arising from fair value purchase accounting adjustments.

e)
Represents stock-based compensation expense recognized for the three month and six month periods ended June 30, 2020 of $12.7 million and $16.2 million, respectively, decreased by $0.5 million for the six month period ended June 30, 2020 due to costs associated with employer taxes.

Represents stock-based compensation expense recognized for the three month and six month periods ended June 30, 2019 of $6.0 million and $13.6 million, respectively, increased by $0.2 million and $1.2 million for the three month and six month periods ended June 30, 2019, respectively, due to costs associated with employer taxes.

f)
Represents losses on extinguishment of a portion of the U.S. term loan and the amendment of the revolving credit facility.

g)
Represents an insurance recovery of the Company’ shareholder litigation settlement in 2014.

h)
Includes (i) effects of the amortization of prior service costs and amortization of losses in pension and other postemployment (‘‘OPEB’’) expense, (ii) certain legal and compliance costs and (iii) other miscellaneous adjustments.

i)
Represents our income tax provision adjusted for the tax effect of pre-tax items excluded from Adjusted Net Income and the removal of the applicable discrete tax items. The tax effect of pre-tax items excluded from Adjusted Income is computed using the statutory tax rate related to the jurisdiction that was impacted by the adjustment after taking into account the impact of permanent differences and valuation allowances. Discrete tax items include changes in tax laws or rates, changes in uncertain tax positions relating to prior years and changes in valuation allowances. The adjusted amounts are then used to calculate an adjusted provision for the quarter

The income tax provision, as adjusted for each of the periods presented below consisted of the following.

   
For the Three Month
   
For the Six Month
 
   
Period Ended
   
Period Ended
 
   
June 30,
   
June 30,
 
   
2020
   
2019
   
2020
   
2019
 
Provision for income taxes
 
$
95.8
   
$
8.3
   
$
37.0
   
$
20.3
 
Tax impact of pre-tax income adjustments
   
(48.4
)
   
10.8
     
40.8
     
20.5
 
Discrete tax items
   
(0.5
)
   
0.1
     
(4.6
)
   
(0.3
)
Income tax provision, as adjusted
 
$
46.9
   
$
19.2
   
$
73.2
   
$
40.5
 

Segment Results

Effective February 29, 2020, as a result of the acquisition of Ingersoll Rand Industrial, we reorganized our segments.  We now classify our business into four segments: Industrial Technologies and Services, Precision and Science Technologies, High Pressure Solutions and Specialty Vehicle Technologies. Our Corporate operations are not discussed separately as any results that had a significant impact on operating results are included in the “Results of Operations” discussion above.  We recasted certain prior period amounts to conform to the way we are internally managed and how we monitor segment performance during the current fiscal year.

51

We evaluate the performance of our segments based on Segment Revenues and Segment Adjusted EBITDA. Segment Adjusted EBITDA is indicative of operational performance and ongoing profitability. Our management closely monitors Segment Adjusted EBITDA to evaluate past performance and identify actions required to improve profitability.

The segment measurements provided to and evaluated by the chief operating decision maker are described in Note 16 “Segment Results” to our unaudited condensed consolidated financial statements included elsewhere in this Form 10-Q.

Segment Results for the Three and Six Month Periods Ended June 30, 2020 and 2019

The following tables display Segment Revenues, Segment Adjusted EBITDA and Segment Adjusted EBITDA Margin (Segment Adjusted EBITDA as a percentage of Segment Revenues) for each of our Segments.

Industrial Technologies and Services Segment Results

   
For the Three Month Period Ended June 30,
   
Percent Change
 
   
2020
   
2019
   
2020 vs. 2019
 
Segment Revenues
 
$
829.6
   
$
427.6
     
94.0
%
Segment Adjusted EBITDA
 
$
183.8
   
$
96.7
     
90.1
%
Segment Margin
   
22.2
%
   
22.6
%
 
(40) bps
 

Segment Revenues for the three month period ended June 30, 2020 were $829.6 million, an increase of $402.0 million, or 94.0%, compared to $427.6 million in the same three month period in 2019. The increase in Segment Revenues was due to acquisitions, including Ingersoll Rand Industrial of $496.7 million or 116.2%, and higher pricing of $4.7 million or 1.1%, partially offset by lower organic volumes of $89.8 million or 21.0%, and unfavorable impact of foreign currencies of $9.7 million or 2.3%. The percentage of Segment Revenues derived from aftermarket parts and service was 39.5% in the three month period ended June 30, 2020 compared to 32.2% in the same three month period in 2019.

Segment Adjusted EBITDA for the three month period ended June 30, 2020 was $183.8 million, an increase of $87.1 million, or 90.1%, from $96.7 million in the same three month period in 2019.  Segment Adjusted EBITDA Margin decreased 40 basis points to 22.2% from 22.6% in 2019.  The increase in Segment Adjusted EBITDA was primarily due to acquisitions, including Ingersoll Rand Industrial of $115.4 million or 119.3% and lower selling and administrative costs of $16.0 million or 16.5%, partially offset by lower organic sales volume of $36.2 million or 37.4% and unfavorable product mix of $11.7 million or 12.1%. The decrease in Adjusted EBITDA as a percentage of revenues is primarily attributable to unfavorable margin mix due to the acquisition and inclusion of Ingersoll Rand Industrial results in the three month period ended June 30, 2020.

   
For the Six Month Period Ended June 30,
   
Percent Change
 
   
2020
   
2019
   
2020 vs. 2019
 
Segment Revenues
 
$
1,333.6
   
$
832.7
     
60.2
%
Segment Adjusted EBITDA
 
$
278.6
   
$
182.2
     
52.9
%
Segment Margin
   
20.9
%
   
21.9
%
 
(100) bps
 

Segment Revenues for the six month period ended June 30, 2020 were $1,333.6 million, an increase of $500.9 million, or 60.2%, compared to $832.7 million in the same six month period in 2019.  The increase in Segment Revenues was primarily due acquisitions, including of Ingersoll Rand Industrial of $660.8 million or 79.4%, and higher pricing of $10.3 million or 1.2%, partially offset by lower organic volume of $152.6 million or 18.3%, and unfavorable impact of foreign currencies of $17.7 million or 2.1%. The percentage of Segment Revenues derived from aftermarket parts and service was 39.6% in the six month period ended June 30, 2020 compared to 32.3% in the same six month period in 2019.

Segment Adjusted EBITDA for the six month period ended June 30, 2020 was $278.6 million, an increase of $96.4 million, or 52.9%, from $182.2 million in the same six month period in 2019.  Segment Adjusted EBITDA Margin decreased 100 basis points to 20.9% from 21.9% in 2019.  The increase in Segment Adjusted EBITDA was primarily due to acquisitions, including Ingersoll Rand Industrial of $142.3 million or 78.1%, higher pricing of $10.3 million or 5.7% and lower selling and administrative costs of $20.5 million or 11.3%, partially offset by lower organic sales volumes of $61.5 million or 33.8% and unfavorable margin mix of $12.9 million or 7.1%. The decrease in Adjusted EBITDA as a percentage of revenues is primarily attributable to unfavorable product mix due to the acquisition and inclusion of Ingersoll Rand Industrial results in the six month period ended June 30, 2020.

52

Precision and Science Technologies Segment Results

   
For the Three Month Period Ended June 30,
   
Percent Change
 
   
2020
   
2019
   
2020 vs. 2019
 
Segment Revenues
 
$
195.8
   
$
82.0
     
138.8
%
Segment Adjusted EBITDA
 
$
59.3
   
$
24.6
     
141.1
%
Segment Margin
   
30.3
%
   
30.0
%
 
30 bps
 

Segment Revenues for the three month period ended June 30, 2020 were $195.8 million, an increase of $113.8 million, or 138.8%, compared to $82.0 million in the same three month period in 2019.  The increase in Segment Revenues was primarily due to acquisitions, including Ingersoll Rand Industrial of $113.7 million or 138.7%. The percentage of Segment Revenues derived from aftermarket parts and service was 13.6% in the three month period ended June 30, 2020 compared to 2.6% in the same three month period in 2019.

Segment Adjusted EBITDA for the three month period ended June 30, 2020 was $59.3 million, an increase of $34.7 million, or 141.1%, from $24.6 million in the same three month period in 2019.  Segment Adjusted EBITDA Margin increased 30 basis points to 30.3% from 30.0% in 2019.  The increase in Segment Adjusted EBITDA was primarily due to acquisitions, including Ingersoll Rand Industrial of $32.4 million or 131.7% and higher pricing of $2.2 million or 8.9%.

   
For the Six Month Period Ended June 30,
   
Percent Change
 
   
2020
   
2019
   
2020 vs. 2019
 
Segment Revenues
 
$
308.6
   
$
161.3
     
91.3
%
Segment Adjusted EBITDA
 
$
92.2
   
$
47.8
     
92.9
%
Segment Margin
   
29.9
%
   
29.6
%
 
30 bps
 

Segment Revenues for the six month period ended June 30, 2020 were $308.6 million, an increase of $147.3 million, or 91.3%, compared to $161.3 million in the same six month period in 2019. The increase in Segment Revenues was primarily due to acquisitions, including of Ingersoll Rand Industrial of $157.8 million or 97.8%, partially offset by lower organic volume of $11.2 million or 6.9%. The percentage of Segment Revenues derived from aftermarket parts and service was 13.1% in the six month period ended June 30, 2020 compared to 3.0% in the same six month period in 2019.

Segment Adjusted EBITDA for the six month period ended June 30, 2020 was $92.2 million, an increase of $44.4 million, or 92.9%, from $47.8 million in the same six month period in 2019.  Segment Adjusted EBITDA Margin increased 30 basis points to 29.9% from 29.6% in 2019.  The increase in Segment Adjusted EBITDA was primarily due to acquisitions, including Ingersoll Rand Industrial of $45.0 million or 94.1%, and higher pricing of $2.9 million or 6.1%, partially offset by lower organic sales volume of $4.6 million or 9.6%.

High Pressure Solutions Segment Results

   
For the Three Month Period Ended June 30,
   
Percent Change
 
   
2020
   
2019
   
2020 vs. 2019
 
Segment Revenues
 
$
21.5
   
$
119.5
     
(82.0
%)
Segment Adjusted EBITDA
 
$
(15.2
)
 
$
32.1
     
(147.4
%)
Segment Margin
   
(70.7
%)
   
26.9
%
 
(9,760) bps
 

Segment Revenues for the three month period ended June 30, 2020 were $21.5 million, a decrease of $98.0 million, or 82.0%, compared to $119.5 million in the same three month period in 2019.  The decrease in Segment Revenues was primarily due to lower volumes of $96.6 million or 80.8% and lower pricing of $1.4 million or 1.2%, as a result of the current downturn in the upstream energy market. The percentage of Segment Revenues derived from aftermarket parts and service was 83.7% in the three month period ended June 30, 2020 compared to 79.6% in the same three month period in 2019.

53

Segment Adjusted EBITDA for the three month period ended June 30, 2020 was $(15.2) million, a decrease of $47.3 million, or 147.4%, from $32.1 million in the same three month period in 2019.

Segment Adjusted EBITDA Margin decreased 9,760 basis points to (70.7%) from 26.9% in 2019.  The decrease in Segment Adjusted EBITDA was primarily due to lower sales volume of $32.1 million or 100.0%, higher selling and administrative expenses of $11.4 million or 35.5% which was primarily due to an increase in the allowance for doubtful accounts of $12.5 million as a result of a customer filing for Chapter 11 bankruptcy protection, and lower pricing of $2.8 million or 8.7%.

   
For the Six Month Period Ended June 30,
   
Percent Change
 
   
2020
   
2019
   
2020 vs. 2019
 
Segment Revenues
 
$
117.8
   
$
255.4
     
(53.9
%)
Segment Adjusted EBITDA
 
$
8.3
   
$
73.9
     
(88.8
%)
Segment Margin
   
7.0
%
   
28.9
%
 
(2,190) bps
 

Segment Revenues for the six month period ended June 30, 2020 were $117.8 million, a decrease of $137.6 million, or 53.9%, compared to $255.4 million in the same six month period in 2019.  The decrease in Segment Revenues was primarily due to lower volumes of $126.1 million or 49.4% and lower pricing of $10.8 million or 4.2%, as a result of the current downturn in the upstream energy market. The percentage of Segment Revenues derived from aftermarket parts and service was 86.4% in the six month period ended June 30, 2020 compared to 80.7% in the same six month period in 2019.

Segment Adjusted EBITDA for the six month period ended June 30, 2020 was $8.3 million, a decrease of $65.6 million, or 88.8%, from $73.9 million in the same six month period in 2019.  Segment Adjusted EBITDA Margin decreased 2,190 basis points to 7.0% from 28.9% in 2019.  The decrease in Segment Adjusted EBITDA was primarily due to lower sales volume of $43.0 million or 58.2%, lower pricing of $10.8 million or 14.6%, and higher selling and administrative expenses of $10.1 million or 13.7% which was primarily due to an increase in the allowance for doubtful accounts of $12.5 million as a result of a customer filing for Chapter 11 bankruptcy protection.

Specialty Vehicle Technologies Segment Results

The Specialty Vehicle Technologies segment was created subsequent to the acquisition of Ingersoll Rand Industrial.  Therefore, comparative prior period information was not part of our consolidated results.

Segment Revenues for the three and six month periods ended June 30, 2020 were $217.5 million and $304.3 million, respectively. The percentage of Segment Revenues derived from aftermarket parts and service was 26.4% and 23.5% in the three and six month periods ended June 30, 2020, respectively.

Segment Adjusted EBITDA for the three and six month periods ended June 30, 2020 was $41.0 million and $55.1 million, respectively.  Adjusted EBITDA as a percentage of revenue was 18.9% and 18.1% for the three and six month periods ended June 30, 2020, respectively.

Liquidity and Capital Resources

Our investment resources include cash generated from operations and borrowings under our Revolving Credit Facility and the Receivables Financing Agreement.

As of June 30, 2020, we had $85.3 million of outstanding letters of credit written against the Revolving Credit Facility and $1,014.7 million of unused availability.  We also had $26.6 million of letters of credit outstanding against the Receivables Financing Agreement and $39.1 million of unused availability.

See the description of these line-of-credit resources in Note 8 “Debt” to the consolidated financial statements in our annual report on Form 10-K for the fiscal year ended December 31, 2019 and Note 8 ‘‘Debt’’ to our unaudited condensed consolidated financial statements included elsewhere in this Form 10-Q.

As of June 30, 2020, we were in compliance with all of our debt covenants and no event of default had occurred or was ongoing.

54

Liquidity

A substantial portion of our liquidity needs arise from debt service requirements, and from the ongoing cost of operations, working capital and capital expenditures.

   
June 30,
2020
   
December 31,
2019
 
Cash and cash equivalents
 
$
1,173.6
   
$
505.5
 
Short-term borrowings and current maturities of long-term debt
   
39.8
     
7.6
 
Long-term debt
   
3,816.7
     
1,603.8
 
Total debt
 
$
3,856.5
   
$
1,611.4
 

We can increase the borrowing availability under the Senior Secured Credit Facilities by up to $1,600.0 million in the form of additional commitments under the Revolving Credit Facility and/or incremental term loans plus an additional amount so long as we do not exceed a specified senior secured leverage ratio. We can incur additional secured indebtedness under the term loan facilities if certain specified conditions are met under the credit agreement governing the Senior Secured Credit Facilities. Our liquidity requirements are significant primarily due to debt service requirements. See Note 10 “Debt” to the consolidated financial statements in our annual report on Form 10-K for the fiscal year ended December 31, 2019 and Note 8 ‘‘Debt’’ to our unaudited condensed consolidated financial statements included elsewhere in this Form 10-Q for further details.

Our principal sources of liquidity have been existing cash and cash equivalents, cash generated from operations and borrowings under the Senior Secured Credit Facilities and the Receivables Financing Agreement. Our principal uses of cash will be to provide working capital, meet debt service requirements, fund capital expenditures and finance strategic plans, including possible acquisitions. We may also seek to finance capital expenditures under capital leases or other debt arrangements that provide liquidity or favorable borrowing terms. We continue to consider acquisition opportunities, but the size and timing of any future acquisitions and the related potential capital requirements cannot be predicted. In the event that suitable businesses are available for acquisition upon acceptable terms, we may obtain all or a portion of the necessary financing through the incurrence of additional long-term borrowings. As market conditions warrant, we may from time to time, seek to repay loans that we have borrowed, including the borrowings under the Senior Secured Credit Facilities. Based on our current level of operations and available cash, we believe our cash flow from operations, together with availability under the Revolving Credit Facility and the Receivables Financing Agreement, will provide sufficient liquidity to fund our current obligations, projected working capital requirements, debt service requirements and capital spending requirements for the foreseeable future. Our business may not generate sufficient cash flows from operations or future borrowings may not be available to us under our Revolving Credit Facility or the Receivables Financing Agreement in an amount sufficient to enable us to pay our indebtedness, or to fund our other liquidity needs. Our ability to do so depends on, among other factors, prevailing economic conditions, many of which are beyond our control. In addition, upon the occurrence of certain events, such as a change in control, we could be required to repay or refinance our indebtedness. We may not be able to refinance any of our indebtedness, including the Senior Secured Credit Facilities, on commercially reasonable terms or at all. Any future acquisitions, joint ventures, or other similar transactions may require additional capital and there can be no assurance that any such capital will be available to us on acceptable terms or at all.

A substantial portion of our cash is in jurisdictions outside the United States. We do not assert ASC 740-30 (formerly APB 23) indefinite reinvestment of our historical non-U.S. earnings or future non-U.S. earnings. The Company records a deferred foreign tax liability to cover all estimated withholding, state income tax and foreign income tax associated with repatriating all non-U.S. earnings back to the United States. Our deferred income tax liability as of June 30, 2020 was $30.3 million which primarily consisted of withholding taxes.

55

Working Capital

   
June 30,
2020
   
December 31,
2019
 
Net Working Capital:
           
Current assets
 
$
3,326.8
   
$
1,543.9
 
Less: Current liabilities
   
1,478.2
     
574.6
 
Net working capital
 
$
1,848.6
   
$
969.3
 
                 
Operating Working Capital:
               
Accounts receivable and contract assets
 
$
975.4
   
$
488.1
 
Plus: Inventories (excluding LIFO)
   
1,013.4
     
489.5
 
Less: Accounts payable
   
683.5
     
322.9
 
Less: Contract liabilities
   
159.9
     
51.7
 
Operating working capital
 
$
1,145.4
   
$
603.0
 

Net working capital increased $879.3 million to $1,848.6 million as of June 30, 2020 from $969.3 million as of December 31, 2019. Operating working capital increased $542.4 million to $1,145.4 million as of June 30, 2020 from $603.0 million as of December 31, 2019.  The increase in operating working capital is primarily due to higher accounts receivable and higher inventories, partially offset by higher accounts payable and higher contract liabilities.

The increase in accounts receivable was primarily due to the acquisition of Ingersoll Rand Industrial of which $575.6 million is included in the June 30, 2020 balance, partially offset by lower sales in the second quarter of 2020 compared to the fourth quarter of 2019. The increase in contract assets was primarily due to the acquisition of Ingersoll Rand Industrial of which $17.5 million is included in the June 30, 2020 balance and due to the timing of revenue recognition and billing on our overtime contracts. The increase in inventories was primarily attributable to the acquisition of Ingersoll Rand Industrial of which $498.1 million is included in the June 30, 2020 balance. The increase in accounts payable was primarily due to the acquisition of Ingersoll Rand Industrial of which $415.3 million is included in the June 30, 2020 balance and the timing of vendor cash disbursements. The increase in contract liabilities was primarily due to the acquisition of Ingersoll Rand Industrial of which $103.2 million is included in the June 30, 2020 balance.

Cash Flows

The following table reflects the major categories of cash flows for the six month periods ended June 30, 2020 and 2019, respectively.

   
For the Six Month Period Ended June 30,
 
   
2020
   
2019
 
Cash flows - operating activities
 
$
315.8
   
$
130.1
 
Cash flows - investing activities
   
17.3
     
(24.5
)
Cash flows - financing activities
   
336.9
     
(16.1
)
Free cash flow(1)
   
290.4
     
105.4
 

(1)
See the “Non-GAAP Financial Measures” section included in this Quarterly Report for a reconciliation to the nearest GAAP measure.

Operating Activities

Cash provided by operating activities increased $185.7 million to $315.8 million for the six month period ended June 30, 20202 from $130.1 million in the same six month period in 2019, primarily due to a larger reduction in accounts receivable and increases in accrued liabilities and accounts payable, partially offset by lower net income (excluding non-cash charges for amortization and depreciation, stock-based compensation expense, foreign currency transaction losses, net, deferred income taxes and non-cash adjustments to carrying value of LIFO inventories).

Investing Activities

Cash provided (used in) by in investing activities included capital expenditures of $25.4 million and $24.7 million for the six month periods ended June 30, 2020 and 2019, respectively. Cash acquired in a business combination was $41.3 million in the six month period ended June 30, 2020 and cash paid in business combinations for the three month period ended June 30, 2019 was $0.5 million.

56

Financing Activities

Cash provided by financing activities of $336.9 million for the six month period ended June 30, 2020 primarily reflected proceeds from long term debt of $1,980.1 million offset by repayments of long term debt of $1,599.6 million and payments of debt issuance costs of $46.6 million.

Cash used in financing activities of $16.1 million for the six month period ended June 30, 2019 reflected repayments of long-term borrowings of $28.8 million, purchases of treasury stock of $17.1 million, payments of contingent consideration of $2.0 million and payments of debt issuance costs of $0.3 million, partially offset by proceeds from stock option exercises of $32.1 million.

Free Cash Flow

Free cash flow increased $185.0 million to $290.4 million in the six month period ended June 30, 2020 from $105.4 million in the same six month period in 2019 primarily due to increased cash provided by operating activities.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements that have or are materially likely to have a current or future material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Contractual Obligations

The following table summarizes our future minimum payments as of June 30, 2020.

       
Payments Due by Period
 
Contractual Obligations
 
Total
   
Remainder of
2020
     
2021-2022
     
2023-2024
   
Thereafter
 
Debt(1)
 
$
3,894.0
   
$
19.5
   
$
78.1
   
$
78.1
   
$
3,718.3
 
Estimated interest payments(2)
   
530.0
     
45.9
     
161.0
     
158.2
     
164.9
 
Finance leases
   
17.6
     
0.4
     
1.6
     
2.1
     
13.5
 
Operating leases(3)
   
170.3
     
25.8
     
82.7
     
40.5
     
21.3
 
Total
 
$
4,611.9
   
$
91.6
   
$
323.4
   
$
278.9
   
$
3,918.0
 

(1)
As of February 28, 2020, we entered into an additional $1,900.0 million term loan in connection with the acquisition of Ingersoll Rand Industrial and as of June 29, 2020, we entered into a $400.0 million term loan.  See Note 8 “Debt” to our unaudited condensed consolidated financial statements included elsewhere in this Form 10-Q for further details.

(2)
Estimated interest payments for long-term debt were calculated as follows: for fixed-rate debt and term debt, interest was calculated based on applicable rates and payment dates; for variable-rate debt and/or non-term debt, interest rates and payment dates were estimated based on management’s determination of the most likely scenarios for each relevant debt instrument. The increase of estimated interest payments since our previously disclosed contractual obligations on Form 10-K for the fiscal year ended December 31, 2019 was due to the $1,900.0 million term loan  and $400.0 million term loan as discussed above.

(3)
The acquisition of Ingersoll Rand Industrial increased our operating leases significantly from our previously disclosed contractual obligations on Form 10-K for the fiscal year ended December 31, 2019.  Approximately $105.5 million of our total operating leases related to the acquisition of Ingersoll Rand Industrial as June 30, 2020

We entered into purchase obligations which consist primarily of agreements to purchase inventory or services made in the normal course of business to meet operational requirements. We are currently assessing these agreements and the enforceability of the contracts in the context of the COVID-19 pandemic. We believe that we are positioned to meet all current purchase obligations, but will continue to assess due to the rapidly changing environment.

57

Critical Accounting Estimates

Management has evaluated the accounting estimates used in the preparation of the Company’s condensed consolidated financial statements and related notes and believe those estimates to be reasonable and appropriate. Certain of these accounting estimates require the application of significant judgment by management in selecting appropriate assumptions for calculating financial estimates. By their nature, these judgments are subject to an inherent degree of uncertainty. These judgments are based on historical experience, trends in the industry, information provided by customers and information available from other outside sources, as appropriate. The most significant areas involving management judgments and estimates may be found in the section “Critical Accounting Estimates” of “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and in Note 1 “Summary of Significant Accounting Policies” of “Item 8. Financial Statements and Supplementary Data” included in our annual report on Form 10-K for the fiscal year ended December 31, 2019 except for the additional critical accounting estimate below.

Business Combinations

We apply the acquisition method of accounting with respect to the identifiable assets and liabilities of a business combination and record the assets acquired and liabilities assumed at their estimated fair values as of the acquisition date.  The excess of the cost of the acquired business and the fair value of the assets acquired and liabilities assumed is recognized as goodwill.  Estimates of fair value represent management’s best estimate of assumptions and about future events and uncertainties, including significant judgments related to future cash flows, discount rates, competitive trends, margin and revenue growth assumptions including royalty rates and customer attrition rates, market comparables and others.  Inputs used are generally obtained from historical data supplemented by current and anticipated market conditions and growth rates.

Significant judgment is required in estimating the fair value of identifiable intangible assets and in assigning their respective useful lives.  The fair value estimates are based on historical information and on future expectations and assumptions deemed reasonable by management, but which are inherently uncertain.  See Note 2 “Business Combinations” to our condensed consolidated financial statements included elsewhere in this Form 10-Q for further information regarding the fair value determination of each of the classes of identifiable intangible assets.  Determining the useful life of an intangible asset also requires judgment.  Certain intangibles are expected to have indefinite lives while certain other identifiable intangible assets have determinable lives.  The useful lives of identifiable intangibles with determinable useful lives is based on a variety of factors, including but not limited to, the competitive environment, product cycles, order life cycles, historical customer attrition rates, market share, operating plans and the macroeconomic environment.  The costs of determinable-lived intangible assets are amortized to expense over the estimated useful life.

Environmental Matters

Information with respect to the effect of compliance with environmental protection requirements and resolution of environmental claims on us and our manufacturing operations is contained in Note 15 “Contingencies” to the condensed consolidated financial statements.  We believe that as of June 30, 2020, there have been no material changes to the environmental matters disclosed in our annual report on Form 10-K for the fiscal year ended December 31, 2019.

Recent Accounting Pronouncements

The information set forth in Note 1 “Condensed Consolidated Financial Statements” to our Condensed Consolidated Financial Statements under Part 1 Item 1 “Financial Statements” under the heading “Recently Issued Accounting Pronouncements” is incorporated herein by reference.

ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to interest rate risk as a result of our variable-rate borrowings. We manage our exposure to interest rate risk by maintaining a mixture of fixed and variable debt, and from time to time, use pay-fixed interest rate swaps as cash flow hedges of our variable rate debt in order to adjust the relative fixed and variable portions.

In addition, we are exposed to foreign currency risks that arise from our global business operations. Changes in foreign currency exchange rates affect the translation of local currency balances of foreign subsidiaries, transaction gains and losses associated with intercompany loans with foreign subsidiaries and transactions denominated in currencies other than a subsidiary’s functional currency. While future changes in foreign currency exchange rates are difficult to predict, our revenues and earnings may be adversely affected if the U.S. dollar further strengthens.

58

We seek to minimize our exposure to foreign currency risks through a combination of normal operating activities, including by conducting our international business operations primarily in their functional currencies to match expenses with revenues and the use of foreign currency forward exchange contracts and debt denominated in currencies other than the U.S. dollar. In addition, to mitigate the risk arising from entering into transactions in currencies other than our functional currencies, we typically settle intercompany trading balances monthly.

As of June 30, 2020, there have been no material changes to our market risk assessment previously disclosed in the annual report on Form 10-K for the fiscal year ended December 31, 2019.

ITEM 4.
CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

The Company maintains a set of disclosure controls and procedures as that term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that are designed to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission (“SEC”) rules and forms, and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures. The design of any disclosure controls and procedures is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Any controls and procedures, no matter how well designed and operated, can provide only reasonable, not absolute, assurance of achieving the desired control objectives. In accordance with Rule 13a-15(b) of the Exchange Act, as of the end of the period covered by this Quarterly Report on Form 10-Q, an evaluation was carried out under the supervision and with the participation of the Company’s management, including its Chief Executive Officer and Chief Financial Officer, of the effectiveness of its disclosure controls and procedures. Consistent with guidance issued by the Securities and Exchange Commission that an assessment of internal control over financial reporting of a recently acquired business may be omitted from management’s evaluation of disclosure controls and procedures, management is excluding an assessment of such internal controls of Ingersoll Rand Industrial from its evaluation of the effectiveness of the Company’s disclosure controls and procedures. The Company acquired Ingersoll Rand Industrial on February 29, 2020. Based on their evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures, as of the end of the period covered by this Quarterly Report on Form 10-Q, were effective to provide reasonable assurance that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and is accumulated and communicated to the Company’s management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Internal Control over Financial Reporting

Except as described below, there have not been any changes in our internal control over financial reporting (as such term is defined in Rule 13a-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

As mentioned above, on February 29, 2020, we completed the acquisition of Ingersoll Rand Industrial.  As part of our ongoing integration of Ingersoll Rand Industrial, we continue to incorporate our controls and procedures into the Ingersoll Rand Industrial subsidiaries and to expand our company-wide controls to reflect the risks inherent in an acquisition of this size and complexity.

PART II.
OTHER INFORMATION

ITEM 1.
LEGAL PROCEEDINGS

The information set forth in Note 15 “Contingencies” to our Condensed Consolidated Financial Statements under Part I Item 1 “Financial Statements,” is incorporated herein by reference.

59


ITEM 1A.
RISK FACTORS

Except as set forth in our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2020, as of June 30, 2020, there have been no material changes to our risk factors included in our annual report on Form 10-K for the year ended December 31, 2019 (the “Annual Report”).

ITEM 2.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Company Purchases

The following table contains detail related to the repurchase of our common stock based on the date of trade during the three month period ended June 30, 2020.

   
Total Number of
   
Average Price Paid
   
Total Number of
Shares Purchased
as Part of
Publicly Announced
   
Maximum Approximate
Dollar Value
of Shares that May Yet
Be Purchased Under the
 
2020 Second Quarter Months
 
Shares Purchased(1)
   
Per Share(2)
   
Plans or Programs (3)
   
Plans or Programs (3)
 
April 1, 2020 - April 30, 2020
   
-
   
$
-
     
-
   
$
220,756,556
 
May 1, 2020 - May 31, 2020
   
17,185
   
$
28.94
     
-
   
$
220,756,556
 
June 1, 2020 - June 30, 2020
   
406
   
$
33.18
     
-
   
$
220,756,556
 

(1)
All of the shares purchased during the three month period ended June 30, 2020 were in connection with net exercises of stock options.

(2)
The average price paid per share includes brokerage commissions.

(3)
On August 1, 2018, the Company announced that our Board of Directors had approved a share repurchase program which authorized the repurchase of up to $250.0 million of the Company’s outstanding common stock over the next two years, effective August 1, 2018 until and including July 31, 2020. For a further description of the share repurchase program, see Note 24 ‘‘Share Repurchase Program’’ to our consolidated financial statements in the annual report on Form 10-K for the fiscal year ended December 31, 2019.

ITEM 3.
DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4.
MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5.
OTHER INFORMATION

None.

60


ITEM 6.
EXHIBITS

The following is a list of all exhibits filed or furnished as part of this report.

The agreements and other documents filed as exhibits to this report are not intended to provide factual information or other disclosures other than with respect to the terms of the agreements or other documents themselves, and you should not rely on them for that purpose.  In particular, any representations and warranties made by us in these agreements or other documents were made solely within the specific context of the relevant agreement or document and may not describe the actual statement of affairs as of the date they were made or at any other time.

Exhibit
No.
Description
   
2.1
Agreement and Plan of Merger, dated as of April 30, 2019, by and among Ingersoll-Rand plc, Gardner Denver Holdings, Inc., Ingersoll-Rand U.S. HoldCo, Inc. and Charm Merger Sub Inc. (incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K filed by Ingersoll-Rand plc on May 6, 2019).
   
2.2
Separation and Distribution Agreement, dated as of April 30, 2019, by and between Ingersoll-Rand plc and Ingersoll-Rand U.S. HoldCo, Inc. (incorporated by reference to Exhibit 2.2 to the Current Report on Form 8-K filed by Ingersoll-Rand plc on May 6, 2019).
   
Joinder Agreement and Amendment No. 6 to Credit Agreement, dated as of June 29, 2020, among Ingersoll Rand Inc., Gardner Denver, Inc., Ingersoll-Rand Services Company, GD German Holdings II GmbH, Gardner Denver Holdings Ltd., Citibank, N.A., and the lenders and other parties party thereto (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by the registrant on July 1, 2020).
   
Transition Agreement, dated June 12, 2020, between Ingersoll Rand Inc. and Emily Weaver.
   
Certification of Periodic Report by Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002 (furnished herewith)
   
Certification of Periodic Report by Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act of 2002 (furnished herewith)
   
Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith)
   
Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith)
   
101.INS
Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
   
101.SCH
Inline XBRL Taxonomy Extension Scheme Document
   
101.CAL
Inline XBRL Taxonomy Extension Calculation Linkbase Document
   
101.DEF
Inline XBRL Taxonomy Extension Definition Linkbase Document
   
101.LAB
Inline XBRL Taxonomy Extension Label Linkbase Document
   
101.PRE
Inline XBRL Taxonomy Extension Presentation Linkbase Document
   
104
Cover Page Interactive Data File (Embedded within the Inline XBRL document and included in Exhibit 101)

61

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: August 4, 2020
INGERSOLL RAND INC.
   
 
By:
/s/ Michael J. Scheske
 
 
Name: Michael J. Scheske
 
Vice President and Corporate Controller
(Principal Accounting Officer)




62
Exhibit 10.2

TRANSITION AGREEMENT

This Transition Agreement (this “Agreement”), dated June 12, 2020 (the “Execution Date”), confirms the following understandings and agreements between Ingersoll Rand Inc. (formerly known as Gardner Denver Holdings, Inc.) (the “Company”) and Emily Weaver (hereinafter referred to as “you” or “your”).

In consideration of the promises set forth herein, you and the Company agree as follows:

1.            Termination of Employment; Transition Period.

(a)         Your employment and all directorships with the Company and its direct and indirect parent(s), subsidiaries and affiliates (collectively with the Company, the “Company Group”) will terminate on the date mutually agreed upon by the parties hereto, which is no later than June 30, 2020 (the “Termination Date”). After the Termination Date, you will not represent yourself as being an employee, officer, agent or representative of the Company or any other member of the Company Group.

(b)          Effective as of the Execution Date, your offer letter, dated October 3, 2019, which sets forth the terms of your employment with the Company (the “Offer Letter”) shall be terminated and of no further force and effect, except that Section 12 of the Offer Letter (related to certain indemnification obligations of the Company) shall continue in effect after the Execution Date in accordance with its terms and such Section 12 is hereby incorporated by reference into this Agreement. The parties hereby agree that you are not required to repay all or any portion of the signing bonus that was paid to you pursuant to Section 2 of the Offer Letter.

(c)          During the period commencing on the Execution Date and ending on your Termination Date (the “Transition Period”), (i) you will continue to serve as the Company’s Senior Vice President and Chief Financial Officer (“CFO”) until June 15, 2020 (at which time you will resign as the CFO), and (ii) thereafter until your Termination Date, you will continue to serve in a full-time capacity as an advisor to the Company’s new CFO (and will hold no other titles or positions with the Company or any other member of the Company Group) and will provide such transitional services as may be requested from time to time by the new CFO or the Company’s Chief Executive Officer.

(d)          During the Transition Period, you will work at the offices of the Company at which you were principally employed prior to the Execution Date (or continue to work remotely per the Company’s on-site work policies), continue to be paid a base salary at the rate of $575,000 per year and continue to participate in all employee benefit plans of the Company on the same basis as such plans were made available to you immediately prior to the Execution Date (except as otherwise provided herein).

(e)          You currently hold options (“Options”) to purchase shares of the Company’s common stock (“Common Stock”), restricted stock units that will be settled in Common Stock (“RSUs”) and performance stock units (“PSUs”) that will be settled in Common Stock. During the Transition Period, your Options, RSUs and PSUs will remain outstanding and continue to vest in accordance with their terms.

2.            Voluntary Termination of Employment Prior to the End of the Transition Period. Notwithstanding anything to the contrary herein, unless the Company agrees otherwise, if you voluntarily terminate your employment prior to the expiration of the Transition Period (a “Voluntary Termination”), you will be entitled to any accrued but unpaid base salary, vacation pay, unpaid business expense reimbursements (subject to the requirements set forth in Section 3(a)(iii) below), or any other unpaid, promised wages that were incurred prior to the date of your Voluntary Termination, and you will have no further rights to any then unpaid payments or benefits under Section 1 above or Section 3 below, but the release in Section 4 below will remain in full force and effect. In the event of your Voluntary Termination, your Options, RSUs and PSUs will cease vesting and the unvested portion of your Options, RSUs and PSUs will be forfeited for no consideration as of the date of your termination, and the vested portion of your Options will remain exercisable in accordance with the terms of such equity awards as applicable to a voluntary termination of employment by you (without good reason and other than for your retirement).

3.          Separation Payments and Benefits.

(a)          In addition to any accrued but unpaid base salary, vacation pay, and any other promised wages due and payable to you following your Termination Date, and provided that (i) your employment is terminated at the end of the Transition Period as described in Section 1 above (and not pursuant to your Voluntary Termination pursuant to Section 2 above), (ii) you execute, deliver and do not revoke this Agreement pursuant to Section 20 below and (iii) you execute, deliver and do not revoke the release agreement attached as Exhibit A hereto (the “Second Release Agreement”) within thirty (30) days after the Termination Date, you will be entitled to the following payments and benefits, subject to your continued compliance with the provisions of this Agreement, including but not limited to Sections 10 through 13 below:

(i)           You will be provided with the severance payments and benefits as determined in accordance with Schedule I attached hereto and payable in accordance with the terms therewith.

(ii)          Your Options, RSUs and PSUs will be treated in accordance with the terms set forth in Schedule I attached hereto (the “Equity Treatment”).

(iii)        The Company will reimburse you for reasonable and customary business expenses incurred prior to the Termination Date pursuant to the terms of the Company’s business expense policy, provided that you submit a completed expense reimbursement form and supporting documentation no later than thirty (30) days following the Termination Date.

(b)         You acknowledge and agree that the payments and other benefits provided pursuant to Section 1 above and this Section 3 (or pursuant to Section 2 above in the event of your Voluntary Termination) are in full discharge of any and all liabilities and obligations of the Company or any other member of the Company Group to you, monetarily or with respect to employee benefits or otherwise, including but not limited to any and all obligations arising under the Offer Letter, any alleged written or oral employment agreement, policy, plan or procedure of the Company or any other member of the Company Group and/or any alleged understanding or arrangement between you and the Company or any other member of the Company Group (other than claims for accrued and vested benefits under an employee benefit, insurance, retirement or pension plan of the Company or any other member of the Company Group (excluding any employee benefit plan providing severance or similar benefits), subject to the terms and conditions of such plan(s)).

4.            Release and Waiver of Claims.

(a)         As used in this Agreement, the term “claims” will include all claims, covenants, warranties, promises, undertakings, actions, suits, causes of action, obligations, debts, accounts, attorneys’ fees, judgments, losses and liabilities, of whatsoever kind or nature, in law, equity or otherwise.

(b)          For and in consideration of the payments and benefits described in Sections 1 through 3 above, and other good and valuable consideration, you, for and on behalf of yourself and your heirs, administrators, executors and assigns, effective as of the date you execute this Agreement, do fully and forever release, remise and discharge the Company, and any other member of the Company Group, together with their respective current and former officers, directors, partners, members, shareholders, fiduciaries, counsel, employees and agents (collectively, and with the Company, the “Company Parties”) from any and all claims whatsoever up to the date you execute this Agreement which you had, may have had, or now have against the Company Parties, for or by reason of any matter, cause or thing whatsoever, including any claim arising out of or attributable to your employment or the termination of your employment with the Company, whether for tort, breach of express or implied employment contract, intentional infliction of emotional distress, wrongful termination, unjust dismissal, defamation, libel or slander, unpaid wages, or under any federal, state or local law dealing with discrimination based on age, race, sex, national origin, handicap, religion, disability, sexual orientation, sickle cell or other hemoglobin C trait, genetic information or testing, AIDS/HIV status, military status, membership of the National Guard of any state, or any other category or class protected by applicable law. This release of claims includes, but is not limited to, all claims arising under the Age Discrimination in Employment Act (“ADEA”), Older Workers Benefit Protection Act, Title VII of the Civil Rights Act, the Americans with Disabilities Act, the Civil Rights Act of 1991, the Family Medical Leave Act and the Equal Pay Act, each as may be amended from time to time, and all other federal, state and local laws, the common law and any other purported restriction on an employer’s right to terminate the employment of employees. In North Carolina, such state law claims include, but are not limited to, claims under the North Carolina Equal Employment Practices Act (EEPA), N.C. Gen. Stat. § 143-422.1, et seq., Persons with Disabilities Protection Act (PDPA), N.C. Gen. Stat. § 168A-1, et seq., and Retaliatory Employment Discrimination Act (REDA), N.C. Gen. Stat. §§ 95-240 et seq. The parties intend the release contained herein to be a general release of any and all claims to the fullest extent permissible by law.

(c)          You acknowledge and agree that as of the date you execute this Agreement, you have no knowledge of any facts or circumstances that give rise or could give rise to any claims under any of the laws listed in the preceding Section 4(b).

(d)          By executing this Agreement, you specifically release all claims relating to your employment and its termination under the ADEA, a United States federal statute that, among other things, prohibits discrimination on the basis of age in employment and employee benefit plans.

(e)         Notwithstanding the foregoing, nothing in this Agreement shall be a waiver of: (i) your rights with respect to payment of amounts under this Agreement, (ii) your right to benefits due to terminated employees under any employee benefit plan of the Company or any other member of the Company Group in which you participate (excluding the Offer Letter and any severance or similar plan or policy), in accordance with the terms thereof (including your rights to elect COBRA coverage), (iii) any claims that cannot be waived by law including, without limitation your right to file a charge with or participate in an investigation or proceeding conducted by the Equal Employment Opportunity Commission, the U.S. Department of Labor, or any other state or federal agency, or claims under the ADEA that arise after the date of this Agreement or (iv) your right of indemnification as provided by, and in accordance with the terms of, the Company’s certificate of incorporation or by-laws or a Company directors and officers liability policy providing such coverage, as any of such may be amended from time to time.

(f)          You acknowledge and agree that by virtue of the foregoing, you have waived any relief available to you (including without limitation, monetary damages, equitable relief and reinstatement) under any of the claims and/or causes of action waived in this Section 4. Therefore you agree that you will not accept any award or settlement from any source or proceeding (including but not limited to any proceeding brought by any other person or by any government agency) with respect to any claim or right waived in this Agreement, except where such waiver is prohibited by law.

5.            Knowing and Voluntary Waiver. You expressly acknowledge and agree that you:

(a)           Are able to read the language, and understand the meaning and effect, of this Agreement;

(b)          Have no physical or mental impairment of any kind that has interfered with your ability to read and understand the meaning of this Agreement or its terms, and that you are not acting under the influence of any medication, drug or chemical of any type in entering into this Agreement;

(c)          Are specifically agreeing to the terms of the release contained in this Agreement because the Company has agreed to your continued employment during the Transition Period as described in Section 1 above and to provide you the severance payments and benefits (as set forth on Schedule I attached hereto), the Equity Treatment and such other payments and benefits set forth on Schedule I and described in Section 3 above (collectively, the “Consideration”), which the Company has agreed to provide because of your agreement to accept it in full settlement of all possible claims you might have or ever had, and because of your execution of this Agreement and the Second Release Agreement;

(d)           Acknowledge that but for your execution of this Agreement and the Second Release Agreement, you would not be entitled to the Consideration;

(e)          Understand that, by entering into this Agreement, you do not waive rights or claims under ADEA that may arise after the date you execute this Agreement;

(f)         Had or could have the entire Review Period (as defined below) in which to review and consider this Agreement, and that if you execute this Agreement prior to the expiration of the Review Period, you have voluntarily and knowingly waived the remainder of the Review Period;

(g)          Have consulted with your attorney regarding the terms and effect of this Agreement; and

(h)          Have signed this Agreement knowingly and voluntarily.

6.           No Suit. You represent and warrant that you have not previously filed, and to the maximum extent permitted by law agree that you will not file, a complaint, charge or lawsuit against any of the Company Parties regarding any of the claims released herein. If, notwithstanding this representation and warranty, you have filed or file such a complaint, charge or lawsuit, you agree that you shall cause such complaint, charge or lawsuit to be dismissed with prejudice and shall pay any and all costs required in obtaining dismissal of such complaint, charge or lawsuit, including without limitation the attorneys’ fees of any of the Company Parties against whom you have filed such a complaint, charge, or lawsuit.

7.          No Re-Employment. You hereby agree to waive any and all claims to re-employment with the Company or any other member of the Company Group. You affirmatively agree not to seek further employment with the Company or any other member of the Company Group.

8.            Successors and Assigns. The provisions hereof shall inure to the benefit of your heirs, executors, administrators, legal personal representatives and assigns and shall be binding upon your heirs, executors, administrators, legal personal representatives and assigns.

9.           Severability. If any provision of this Agreement shall be held by any court of competent jurisdiction to be illegal, void or unenforceable, such provision shall be of no force and effect. The illegality or unenforceability of such provision, however, shall have no effect upon and shall not impair the enforceability of any other provision of this Agreement.

10.          Non-Disparagement; Press Release.

(a)         You agree that you will make no disparaging or defamatory comments regarding any member of the Company Group, Kohlberg Kravis and Roberts & Co. L.P. (“KKR”) and its affiliates, or their respective current or former directors, officers or employees in any respect. KKR is a third-party beneficiary to this Agreement with respect to this Section 10(a) and is entitled to the rights and benefits under this Section 10(a) and may enforce the provisions of this Section 10(a) as if it were a party hereto.

(b)         The Company agrees to promptly instruct (i) each officer and director of the Company and (ii) each employee of the Company or a member of the Company Group listed on Schedule II attached hereto to refrain from making any disparaging or defamatory comments regarding you in any respect.

(c)          The Company agrees to issue the press release agreed to by the parties (the “Press Release”). You agree that you will not make any statements, whether oral or written, regarding your employment with or separation of employment from the Company that are inconsistent with the Press Release or comment in any form on any other matter regarding the Company Group beyond what is stated in the Press Release. Notwithstanding the foregoing, you and the Company will be entitled to describe in general terms your responsibilities and roles while employed by the Company and that you and the Company mutually agreed to your separation from the Company.

(d)          Your obligations and those of the Company under this Section 10 shall not apply to disclosures required by applicable law, regulation or order of a court or governmental agency.

11.          Cooperation.

(a)         You agree that you will provide reasonable cooperation to the Company and/or any other member of the Company Group and its or their respective counsel in connection with any investigation, administrative proceeding or litigation relating to any matter that occurred or was pending during your employment. The Company agrees to reimburse you for reasonable out-of-pocket expenses incurred at the request of the Company with respect to your compliance with this Section 11(a).

(b)         You agree that, in the event you are requested or subpoenaed by any person or entity (including, but not limited to, any government agency) to give testimony or provide documents (in a deposition, court proceeding or otherwise) which in any way relates to the Company Group or your employment by the Company and/or any other member of the Company Group, you will give prompt notice of such request to the Company’s General Counsel, Andy Schiesl (or his successor or designee) and will make no disclosure until the Company and/or the other member of the Company Group have had a reasonable opportunity to contest the right of the requesting person or entity to such testimony or documents. You will reasonably cooperate with the Company in any such efforts including any resulting testimony or document production that is ultimately allowed, if any.

12.         Restrictive Covenants. You acknowledge that, in accordance with the terms of the Grant Documents (as defined in Schedule I attached hereto), you are subject to the restrictive covenants set forth on Appendix A of such Grant Documents, including, without limitation, the non-competition, non-solicitation, non-disparagement, confidentiality and intellectual property covenants therein and agree to comply at all time with the terms and conditions of such restrictive covenants, provided, that in each such Appendix A, the definition of “Business” is hereby amended in its entirety to read as follows: “Business” shall mean the business of the design, manufacture, sale, distribution and marketing of flow control, power tool, hoist and lifting equipment, or electric vehicle products or services, in either case of the type being manufactured and sold by the Company as of the Termination Date. Each such Appendix A (as modified by this Agreement) is hereby incorporated by reference into this Agreement.

13.        Return of Property. You agree that you will promptly return to the Company all property belonging to the Company and/or any other member of the Company Group, including but not limited to all proprietary and/or confidential information and documents (including any copies thereof) in any form belonging to the Company, cell phone, computer, keys, card access to the building and office floors, Employee Handbook, phone card, computer user name and password, disks and/or voicemail code; provided, that you shall be entitled to retain your cell phone once all proprietary and/or confidential information and documents belonging to the Company have been removed from such devices. Your cell phone account will be transferred to you promptly following the Termination Date. You further acknowledge and agree that the Company shall have no obligation to provide the Consideration referred to in Section 3 above unless and until you have returned all items requested by the Company to be returned within ten (10) days of such request.

14.         Company Remedies. In addition to any other rights or remedies the Company may have under law or equity, if you violate any of Sections 10 through 13 above, the Company has the right at its reasonable sole discretion to terminate its obligation to provide the payments and benefits set forth on Schedule I and/or comply with the Equity Treatment.

15.          Non-Admission. Nothing contained in this Agreement will be deemed or construed as an admission of wrongdoing or liability on the part of you or any member of the Company Group.

16.         Section 409A. You and the Company agree that the payments and/or benefits provided under this Agreement are intended to be exempt from or to comply with Section 409A of the Internal Revenue Code of 1986, as amended (“Section 409A”), to the extent necessary to avoid the incurrence of adverse tax consequences under Section 409A (including, for the avoidance of doubt, by requiring that the payment of any severance payments or benefits due hereunder be deferred until the date that is six months following the Termination Date, to the extent such delay is required to comply with Section 409A), and to the maximum extent permitted, this Agreement shall be interpreted to be consistent with such intent. Each payment made under this Agreement shall be designated as a “separate payment” within the meaning of Section 409A. Notwithstanding the foregoing, neither the Company, any member of the Company Group nor any of their employees or representatives shall have any liability to you to the extent that any payment or benefit hereunder is determined to be subject to any tax or interest under Section 409A.

17.        Entire Agreement. This Agreement constitutes the entire understanding and agreement of the parties hereto regarding the termination of your employment. Except as provided in this Agreement, this Agreement supersedes all prior negotiations, discussions, correspondence, communications, understandings and agreements between the parties relating to the subject matter of this Agreement.

18.          Taxes. The Company may withhold from any payments made under this Agreement all applicable taxes, including but not limited to income, employment, and social insurance taxes, as shall be required by law. You acknowledge and represent that the Company has not provided any tax advice to you in connection with this Agreement and have been advised by the Company to seek tax advice from your own tax advisors regarding this Agreement and payments and benefits that may be made to you pursuant to this Agreement.

19.        Governing Law; Jurisdiction. EXCEPT WHERE PREEMPTED BY FEDERAL LAW, THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH FEDERAL LAW AND THE LAWS OF THE STATE OF DELAWARE, APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED IN THAT STATE. EACH PARTY TO THIS AGREEMENT HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY IN CONNECTION WITH ANY SUIT, ACTION OR PROCEEDING UNDER OR IN CONNECTION WITH THIS AGREEMENT.

20.         Opportunity for Review and Acceptance. You have through the twenty-first (21st) day following the Execution Date (the “Review Period”) to review and consider this Agreement. To accept this Agreement, and the terms and conditions contained herein, prior to the expiration of the Review Period, you must execute and date this Agreement where indicated below and return the executed copy of this Agreement to the Company, to the attention of the Company’s General Counsel, Andy Schiesl. Notwithstanding anything contained herein to the contrary, this Agreement will not become effective or enforceable for a period of seven (7) calendar days following the date of its execution (the “Revocation Period”), during which time you may revoke your acceptance of this Agreement by notifying the General Counsel, in writing. To be effective, such revocation must be received by the Company no later than 5:00 p.m. Eastern Time on the seventh (7th) calendar day following its execution. Provided that this Agreement is executed and you do not revoke it, the eighth (8th) day following the date on which this Agreement is executed shall be its effective date. In the event of your failure to execute and deliver this Agreement prior to the expiration of the Review Period, or otherwise revoke this Agreement during the Revocation Period, this Agreement will be null and void and of no effect, and the Company will have no obligation hereunder.

21.         Indemnification; D&O Coverage. The Company Group and their respective successors and/or assigns, will indemnify, defend and hold you harmless to the fullest extent permitted by the certificate of incorporation and by-laws of the Company with respect to any claims that may be brought against you arising out of any action taken or not taken in your capacity as an officer or director of any member of the Company Group. In addition, you shall be covered as an insured in respect of your activities as an officer or director of any member of the Company Group by the directors and officers liability policy of the Company.

* * *

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date set forth below.

INGERSOLL RAND INC.

 
By:
/s/ Andrew Schiesl
 
 
Name: Andrew Schiesl
 
 
Title: SVP & General Counsel
 
     
  /s/ Emily Weaver
 
 
Emily Weaver
 
 
Dated: June 12, 2020
 

Schedule I

SEVERANCE PAYMENTS AND BENEFITS

Severance Payment and Timing:

An aggregate severance payment equal to $575,000 will be paid to you in equal bi-monthly installments of $23,958.33 each on the Company’s regular payroll schedule over the one (1)-year period following the Termination Date with payments starting on the first regularly scheduled payroll date following the Termination Date; provided, that any installment that would otherwise be paid prior to the effective date of the Second Release Agreement shall be deferred until the first regularly scheduled payroll date following the effective date of the Second Release Agreement.

Benefit Continuation:

Subject to a timely election of COBRA continuation coverage and your continued payment of your portion of the COBRA premiums, during the eighteen (18) month period following the Termination Date (or such earlier time that you commence employment with another employer and are eligible for group health plan coverage at such employer), you will receive continued group medical, dental and vision plan coverage under COBRA at active employee rates and the Company will pay the equivalent Company portion of your premiums for you and your eligible dependents (e.g., the full COBRA premium cost, less the employee contribution at active employee rates in effect at the time of such payment). If you become eligible for group health plan coverage under another employer’s plan, or if you otherwise cease to be eligible for COBRA coverage, you must immediately notify the Company, and the Company’s obligation to pay a portion of the COBRA premiums shall cease.

Outplacement Services:

The Company shall provide executive transition services from RiseSmart at the elite program level until the earlier of (A) twelve (12) months following the Termination Date, or (B) the date on which you secure full-time employment with a subsequent employer.

Reference Requests:

The Company will respond to reference requests by an employer or prospective employer. You agree to direct all reference requests to the Company’s Human Resources department. In response to a reference request, the Company shall provide only your dates of employment and job title.

Moving Expenses:

The Company shall provide reimbursement, up to an aggregate amount of $50,000 (the “Relocation Benefit”), for reasonable household goods and automobile moving expenses incurred by you after the Termination Date (subject to reasonable receipts and proof of expense) for your relocation outside of the Charlotte, North Carolina metropolitan area provided such relocation occurs no later than December 31, 2022. The amount of the Relocation Benefit provided for hereunder shall be reduced by the amount of any similar relocation benefits or reimbursements that would be provided or reimbursable to you under any subsequent employer’s (assuming you are re-employed prior to December 31, 2022) standard relocation policy or, if greater, for which the subsequent employer has agreed to provide or reimburse you.

Legal Fees:

The Company shall pay (as soon as reasonably practicable following the Company’s receipt of an invoice from you), to the extent permitted by law, all reasonable legal fees and expenses for advice and representation that you reasonably incurred as a result of evaluating and negotiating the terms of this Agreement (and the other documents referenced herein); provided, that the Company will not reimburse any amount in excess of $10,000.

MIP Bonus 2020:

Your participation in any Company bonus plan, including but not limited to the Management Incentive Plan (“MIP”), will cease as of the Termination Date. You will not be eligible for any incentive bonus under the MIP or otherwise in 2020.

Taxes:

All severance payments and benefits are subject to applicable withholdings per Section 18 of this Agreement.

Equity Treatment:

1.            Options.

(a)          Forfeiture; Vesting. You currently hold Options granted to you under the Company’s Amended and Restated 2017 Omnibus Incentive Plan (the “Omnibus Plan”) and the Stock Option Award Agreements dated as of December 4, 2019 (the “2019 Option Agreement”) and March 6, 2020 (the “2020 Option Agreement” and together with the 2019 Option Agreement, the “Option Agreements”), which will be unvested as of the Termination Date (the “Unvested Options”). Notwithstanding anything to the contrary in the Omnibus Plan or Option Agreements, and provided you continue to comply with the terms of this Agreement (including without limitation Sections 10 through 13 of this Agreement), (i) the Unvested Options granted under the 2019 Option Agreement will not be forfeited on the Termination Date and instead will continue to vest and become exercisable in accordance with the terms of the Omnibus Plan and 2019 Option Agreement as if you remained an employee of the Company until the final vesting date thereunder; and (ii) the Unvested Options granted under the 2020 Option Agreement that are scheduled to vest on the next two (2) vesting dates following the Termination Date will not be forfeited on the Termination Date and instead will continue to vest in accordance with the terms of the Omnibus Plan and the 2020 Option Agreement as if you remained an employee of the Company until the second (2nd) vesting date and all of the other Unvested Options under the 2020 Option Agreement will be automatically forfeited on the Termination Date.
 
(b)          Exercise Period. Notwithstanding anything to the contrary in the Omnibus Plan or the Option Agreements, and provided you continue to comply with the terms of this Agreement (including without limitation Sections 10 through 13 of this Agreement), you may elect to exercise any vested Options granted under the Omnibus Plan pursuant to the Option Agreements (including any Unvested Options that vest after the Termination Date consistent with paragraph 1 above) (i) with respect to the 2019 Option Agreement, until December 4, 2024, or until the expiration date of the Options (if earlier) as set forth in the 2019 Option Agreement, and (ii) with respect to the 2020 Option Agreement, until December 4, 2023, or until the expiration date of the Options (if earlier) as set forth in the 2020 Option Agreement.

2.           Restricted Stock Units. You currently hold RSUs granted to you under the Omnibus Plan and the RSU Award Agreements dated as of December 4, 2019 (the “2019 RSU Agreement”), March 6, 2020 (for 4-year vesting RSUs) (the “2020 RSU Agreement”) and March 6, 2020 (for 2-year vesting RSUs) (the “2020 Additional RSU Agreement,” and together with the 2019 RSU Agreement and the 2020 RSU Agreement the “RSU Agreements”), which will be unvested as of the Termination Date (the “Unvested RSUs”). Notwithstanding anything to the contrary in the Omnibus Plan or RSU Agreements, and provided you continue to comply with the terms of this Agreement (including without limitation Sections 10 through 13 of this Agreement), (i) the Unvested RSUs under the 2019 RSU Agreement and the 2020 Additional RSU Agreement will not be forfeited on the Termination Date and will continue to vest in accordance with the terms of the Omnibus Plan and the 2019 RSU Agreement or 2020 Additional RSU Agreement, as applicable, as if you remained an employee of the Company until the final vesting date thereunder, and (ii) the Unvested RSUs under the 2020 RSU Agreement that are scheduled to vest on the next two (2) vesting dates following the Termination Date will not be forfeited on the Termination Date and instead will continue to vest in accordance with the terms of the Omnibus Plan and the 2020 RSU Agreement as if you remained an employee of the Company until the second (2nd) vesting date and all of the other Unvested RSUs under the 2020 RSU Agreement will be automatically forfeited on the Termination Date.
 
3.          Performance Stock Units. You currently hold PSUs granted to you under the Omnibus Plan and the PSU Award Agreement dated as of March 6, 2020 (the “PSU Agreement” and, together with the Omnibus Plan, the Option Agreements and the RSU Agreements, the “Grant Documents”), which will be unvested as of the Termination Date (the “Unvested PSUs”). All Unvested PSUs will cease vesting and will be forfeited for no consideration as of the Termination Date, in accordance with the terms of the PSU Agreement.
 
4.            Vesting Schedule. For reference, a table that describes the vesting schedule applicable to the Options and RSUs that will continue to vest pursuant to the terms of this Agreement (without taking into account any potential forfeitures of such awards pursuant to the terms of this Agreement or the applicable Grant Documents, as modified by paragraphs 1 to 3 above) is set forth on Exhibit B to this Agreement. In the event of any conflict between the information in such table and this Agreement or the applicable Grant Documents, this Agreement and the applicable Grant Documents (as modified by paragraphs 1 to 3 above) will control.


Exhibit 31.1

CERTIFICATION OF PERIODIC REPORT UNDER SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002

I, Vicente Reynal, certify that:

1. I have reviewed this quarterly report on Form 10-Q for the quarterly period ended June 30, 2020 of Ingersoll Rand Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 4, 2020
 
 
/s/ Vicente Reynal
 
 
Vicente Reynal
 
Chief Executive Officer and Director
 
(Principal Executive Officer)


Exhibit 31.2
 
CERTIFICATION OF PERIODIC REPORT UNDER SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002

I, Vikram U. Kini, certify that:
 
1. I have reviewed this quarterly report on Form 10-Q for the quarterly period ended June 30, 2020 of Ingersoll Rand Inc.;
 
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
 
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
 
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
 
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
 
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
 
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
 
Date: August 4, 2020
 
   
 
/s/ Vikram U. Kini
 
 
Vikram U. Kini
 
Vice President and Chief Financial Officer
 
(Principal Financial Officer)


Exhibit 32.1

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
 
In connection with the Quarterly Report of Ingersoll Rand Inc. (the “Company”) on Form 10-Q for the quarterly period ended June 30, 2020 filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Vicente Reynal, Chief Executive Officer and Director of the Company, do hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
 

•
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
 

•
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company for the periods presented therein.
 
Date: August 4, 2020
 
 
/s/ Vicente Reynal
 
 
Vicente Reynal
 
Chief Executive Officer and Director
 
(Principal Executive Officer)


Exhibit 32.2
 
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Ingersoll Rand Inc. (the “Company”) on Form 10-Q for the quarterly period ended June 30, 2020 filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Vikram U. Kini, Vice President and Chief Financial Officer of the Company, do hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
 

•
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
 

•
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company for the periods presented therein.
 
 Date: August 4, 2020
 
   
 
/s/ Vikram U. Kini
 
 
Vikram U. Kini
 
Vice President and Chief Financial Officer
 
(Principal Financial Officer)